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You may have heard that 20% is the ideal down payment on a house, but that doesn’t mean you must pony up that amount to become a homeowner. In truth, the average house down payment is considerably smaller. Currently, the median down payment for a house is 15%, according to data from the National Association of Realtors® (NAR).
Here, you’ll learn more about down payments so you can house-hunt like an insider. Getting a sense of what others are paying and how that differs based on geographic area is helpful. We’ll also share how you might access help if you can’t come up with 20%. Armed with this intel, you’ll be better prepared to navigate that major rite of passage: purchasing a home.
Table of Contents
Key Points
• The median down payment for a house in the US ranges widely from 10% to 35% of the purchase price.
• The amount of the down payment can vary based on factors like loan type, credit score, and lender requirements.
• A larger down payment can result in lower monthly mortgage payments and potentially better loan terms.
• Down payment assistance programs and gifts from family members can help with affordability.
• It’s important to save and plan for a down payment to achieve homeownership goals.
Average Down Payment Statistics
As of 2023, the median down payment for a house was 15%, or $63,908 if you consider that the median national home price in 2023 was $426,056, according to Redfin. This was up slightly from 13% in 2022, according to the NAR. (The median means half of buyers put down less and half put down more; it’s generally considered a better barometer than an average, because the latter can be thrown off by outliers — people who spend wildly more or less than usual.)
This 15% figure shows that the conventional wisdom that you need 20% down to purchase a home is, to a large extent, untrue. In fact, in an April 2024 SoFi survey of prospective homebuyers, many planned to put down far less than 20%. Almost a third of respondents (29%) said they planned to put down 10% or less, and 7% of those surveyed were exploring zero-down-payment options.
A 20% down payment will lower your mortgage amount and monthly payments vs. a smaller down payment, and will allow you to avoid private mortgage insurance (PMI), but it’s not the only game in town.
Average Down Payment on a House for First-Time Buyers
First-time buyers make about a third of all home purchases, and the typical down payment for first-time buyers in the NAR survey was 8%, while repeat buyers’ typical down payment was 19%. (Repeat buyers often have money from the sale of their first residence to put toward the purchase of their next one.)
Down Payment Requirements by Mortgage Loan Type
The amount of money you put down on a home may be governed in part by the type of mortgage loan you choose (and conversely, how much money you have saved for a down payment could dictate the type of mortgage you qualify for). Let’s take a look at the different loan types and their down payment requirements.
Remember that if you are buying your first home or you haven’t purchased a residence in three or more years, you may qualify as a first-time homebuyer and be eligible for special first-time homebuyer programs.
Conventional Loan
This is the kind of loan favored by most buyers, and for first-time homebuyers some conventional home loans can allow for as little as 3% down on a home purchase. A repeat homebuyer might need to put down a bit more — say 5%.
FHA Loan
An FHA loan, acquired through private lenders but guaranteed by the Federal Housing Administration, allows for a 3.5% minimum down payment if the borrower’s credit score is at least 580.
VA Loan and USDA Loan
These loans usually require no down payment, although there are still other hoops to jump through to qualify for one of these loans.
A VA loan backed by the Department of Veterans Affairs, is for eligible veterans, service members, Reservists, National Guard members, and some surviving spouses. The VA also issues direct loans to Native American veterans or non-Native American veterans married to Native Americans. For a typical VA loan borrower, no down payment is required.
A USDA loan backed by the U.S. Department of Agriculture is for households with low to moderate incomes buying homes in eligible rural areas. The USDA also offers direct subsidized loans for households with low and very low incomes. Typically, a credit score of 640 or higher is needed. While borrowers can make a down payment, one is not required.
Jumbo Loan
A jumbo loan is a loan for an amount over the conforming loan limit, which is set by the Federal Housing Finance Agency (FHFA). In most U.S. counties, the conforming loan limit for a single-family home in 2024 is $766,550. Minimum down payment rules for jumbo loans vary by lender but are generally higher than those for conforming loans. Some lenders require a 10% down payment, and others require as much as 20%.
For all of the above loan types, the home being purchased must be a primary residence in order to qualify for the minimum down payment, but a homebuyer can use a conventional or VA loan to purchase a multifamily property with up to four units if one unit will be owner-occupied.
Average Down Payment by Age Group
The latest NAR Home Buyers and Sellers Generational Trends Report breaks down by age the percentage of a home that was financed by homebuyers in 2023.
Older buyers tend to use proceeds from the sale of a previous residence to help fund the new home. Buyers 59 to 68 years old, for instance, put a median of 22% down, the NAR report shows.
Most younger buyers depend on savings for their down payment. Buyers ages 25 to 33 put down a median of 10%, and those ages 34 to 43, 13%. A fortunate 20% of the younger homebuyers (those age 25-33) received down payment help from a friend or relative.
Percentage of Home Financed
All buyers | Ages 25-33 | Ages 34-43 | Ages 44-58 | Ages 59-68 | Ages 69-77 | Ages 78-99 | |
---|---|---|---|---|---|---|---|
50% | 15% | 6% | 8% | 15% | 22% | 31% | 29% |
50-59% | 6% | 2% | 5% | 5% | 9% | 14% | 11% |
60-69% | 6% | 2% | 5% | 6% | 9% | 11% | 9% | 71-79% | 13% | 13% | 14% | 14% | 12% | 9% | 15% |
80-89% | 23% | 26% | 27% | 22% | 19% | 18% | 14% |
90-94% | 13% | 19% | 14% | 12% | 10% | 4% | 8% |
95-99% | 14% | 22% | 17% | 12% | 8% | 4% | 7% |
100% (financed the whole purchase) | 12% | 9% | 11% | 13% | 9% | 9% | 6% |
Average Down Payment by State
The average house down payment in any given state is tied to home prices in that location. You can look into the cost of living by state for an overview and then find the median home value in a particular state at a given point in time and estimate what your down payment might be.
The least expensive states in which to buy a home? Iowa, Oklahoma, Ohio, Mississippi, and Louisiana are among them, according to Redfin.
Average Down Payment On a House in California
California, the most populous state and one of the largest by area, is joined by Hawaii and Colorado on many lists of the most expensive states in which to buy a house. Redfin shows a median sales price of $859,300 in California in spring of 2024. A 3% down payment would be $25,779; 10% down, $85,930; and 20% down, $152,260. The Los Angeles housing market is among the toughest in California, with the median sale price up more than 10% in the last year to $1,050,000. You might want to check out housing market trends by city as well if you are interested in finding out where owning a home could be more or less expensive.
Hawaii comes out near the top with a median home price of $754,800. Three percent down would be $22,644; 10% down, $75,480; and 20%, $150,960. In Hawaii, the conforming loan limit is $1,149,825, a reflection of the state’s high home prices. If you need a mortgage for more than that amount in Hawaii, you’ll be in the market for a jumbo loan.
Recommended: How to Afford a Down Payment on Your First Home
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Source of Down Payment
You’re probably wondering where homebuyers get the money to afford a down payment, especially first-time homebuyers. NAR has polled buyers to probe that question. Not surprisingly, more than half of buyers (53%) simply say they have saved up the money — which of course isn’t simple at all.
Savings is especially likely to fund a home purchase for those ages 25-33. Almost three-quarters of younger buyers rely on it for their down payment. Older buyers also use savings but are more likely to draw on the sale of a primary residence. This is especially true after age 59.
Other down payment sources include gifts from relatives or friends, sale of stock, a loan or draw from a 401K or pension, or an inheritance. For those who don’t have generational wealth or savings to rely on, first-time homebuyer programs can make home ownership possible.
City, county, and state down payment assistance programs are also out there. They may take the form of grants or second mortgages, some with deferred payments or a forgivable balance.
How Does Your Down Payment Affect Your Monthly Payments?
Curious to see what your potential mortgage would look like based on different down payments? Start with a home affordability calculator (like the one below) to get a feel for how much you’ll need to put down and other expenses.
Or use this mortgage calculator to estimate how much your mortgage payments would be, depending on property value, down payment, interest rate, and repayment term.
If Your Down Payment Is Less Than 20%
If your down payment will be less than 20%, you now know that you’ll have plenty of company. (In SoFi’s survey, 14% of would-be buyers said not having an adequate down payment was their primary challenge.) Consider these ways to optimize the situation:
• A government loan could be the answer: FHA loans are popular with some first-time buyers because of the lenient credit requirements. The down payment for an FHA loan is just 3.5% if you have a credit score of 580 or more. Just know that upfront and monthly mortgage insurance premiums (MIP) always accompany FHA loans, and remain for the life of the loan if the down payment is under 10%. If you put 10% or more down, you’ll pay MIP for 11 years.
• You may be able to improve your loan terms: If you can’t pull together 20% for a down payment, you can still help yourself by showing lenders that you’re a good risk. You’ll likely need a FICO® score of at least 620 for a conventional loan. If you have that and other positive factors, you may qualify for a more attractive interest rate or better terms.
• You can eventually cancel PMI: Lenders are required to automatically cancel PMI when the loan balance gets to 78% LTV of the original value of the home. You also can ask your lender to cancel PMI on the date when the principal balance of your mortgage falls to 80% of the original home value.
You may be able to find down payment assistance: City, county, and state down payment assistance programs are out there, and SoFi’s survey suggests they don’t get enough attention: About half (49%) of the homebuyers who said they were challenged to come up with a down payment hadn’t looked into city or state down payment assistance programs. The assistance may take the form of grants or second mortgages, some with deferred payments or a forgivable balance.
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Dream Home Quiz
The Takeaway
What is the average down payment on a house? Currently, it’s about 15% of the home’s purchase price, which usually means mortgage insurance and higher payments for the buyer. But buyers who put less than 20% down on a house unlock the door to homeownership every day. If you want to join them, you can be helped along by low down payments for first-time homebuyers, as well as government loans, down payment assistance, and other programs.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is 10% down payment enough for a house?
Yes. More than a third of all buyers put down 10% or even less to buy a home. Lower down payments are especially common among younger and/or first-time homebuyers.
What is the minimum you should put down on a house?
Conventional wisdom says the minimum down payment is 20%, but most buyers put down less — 15% is far more common. Younger buyers and first-time homebuyers, especially, often put down far less and some home loans allow you to finance 97% or even 100% of the home’s cost.
What factors can affect my down payment requirements?
The amount of down payment you’ll need to come up with depends on your loan type, credit history and credit score, the cost of the property you’re buying, and whether you are a first-time homebuyer.
What are the pros and cons of putting down less than 20% on a house?
Putting down less than 20% on a house might allow you to buy a home sooner. It might also permit you to set aside money for renovations or to pay off other debts. The disadvantage is that those who put down less than 20% usually have to pay for private mortgage insurance which adds to their monthly costs. (Those with FHA loans who put down less than 20% will pay a mortgage insurance premium.)
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
SOHL-Q324-107
Source: sofi.com
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The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Many Americans don’t closely track their finances or know what their current credit score is. Being financially literate, especially when it comes to credit usage, can make it much easier to manage your finances and, over time, improve your situation. The good news is that numerous personal finance tools are available today to make things easier than ever.
Keep reading to learn more about the top four personal finance tools you should start using today.
What are financial tools?
Financial tools are apps or services that help you track and manage your financial transactions. These tools can help you stay within your spending limits, meet your financial goals and make informed financial decisions.
Today, you can access many of these tools online through a secure platform or app. For many, these tools are an essential part of financial management. They help simplify the financial tracking process and make it easier to understand your current financial status.
Top 4 types of personal finance tools available
1. Budgeting tools
Financial freedom doesn’t just happen overnight. It takes careful planning and continuous tracking of where you spend every dollar. This is why maintaining a personal budget is so important. Keeping a budget can ensure you’re saving enough to meet your future needs, preventing you from spending more money than you earn and helping you create an emergency fund.
Fortunately, you no longer need to rely on pen and paper to keep a budget and track your spending. Instead, there are a number of online tools you can use to quickly track where you spend every dime. While Mint has been a popular budgeting tool for many consumers, it’s ceasing operations as of January 1, 2024. Whether you’re looking for a Mint replacement or your first budgeting app, here’s a look at the top options available.
- You Need A Budget: Commonly referred to as YNAB, this tool uses the zero-based budget system to track every dollar you earn and spend. The easy-to-use finance tool lets you link all your accounts, including bank accounts, credit cards and loan payments, to help you get a clear view of your financial status.
- Goodbudget: This online tool uses the popular envelope budgeting system to ensure you’re tracking every dollar you spend. While you can’t link your bank account to Goodbudget, you can import data from your bank to keep everything up to date. The app shows you how much money you have left to spend in each category.
- PocketGuard: PocketGuard is a simplified budgeting tool that links to your bank accounts, credit accounts and loans. It automatically tracks your bills to let you know how much you have left to spend. While it doesn’t have all the special features you might find with other budgeting apps, it’s a good choice for those who prefer a straightforward approach to budget tracking.
- HoneyDue: This online budgeting tool is ideal for couples who want to sync their accounts. It lets users customize their own settings for what information they want to share with each other and how to split expenses. HoneyDue also offers special features such as bill reminders and goal setting.
2. Online banking tools
Nearly all banks, credit unions and credit card companies offer online services. Chances are, you already use these online tools to track your account balance, deposits and charges. While using these tools for basic services is a good first step, these apps offer so much more. Here’s a look at several other online services most financial institutions offer.
- Online bill payment: Most banks and credit unions let you use their online platform to pay bills. This great feature allows you to instantly make payments online so you can avoid late payment fees.
- Mobile check deposit: Fortunately, you don’t have to run to the bank every time you want to deposit a check. You can deposit it directly through your mobile device. In many cases, you can see funds from these deposits in your account almost immediately or the next day.
- Transfer funds: When that work bonus hits your bank account, you don’t have to risk spending more of it than you planned. Instead, use your online banking platform to transfer the funds from your checking to your savings account instantly.
- Credit score: Some banks and credit unions provide their customers with a look at their credit score. This feature can help you track your score over time.
3. Investment tools
According to the latest Gallup poll, 61 percent of adults in the United States own some type of stock. For many, their stock ownership is limited to their 401(k), but your investment options don’t have to stop there. Many online tools are ideal for beginner and long-time investors.
Best of all, you don’t need a lot of money to invest. In fact, you can get started with your spare change. If you’re ready to start building your investment portfolio, check out these online investment tools.
- Acorns: Acorns is a good option for those just starting to invest. There are no minimum deposit requirements when you sign up for its Round-Ups program. This program rounds up every transaction you make to the nearest whole dollar. It then uses these funds to automatically invest your money and build your portfolio.
- RobinHood: RobinHood is a popular investment app for those who want to take charge of their own investment options. There are no minimum balance requirements or commission fees, which is great for those looking for a low-cost way to start investing in the stock market. RobinHood even lets users buy cryptocurrency.
- Fidelity: If you’re looking for an online tool that offers a hands-off approach to investment while also helping you better understand the stock market, Fidelity may be the right option for you. The combination of its robo-advisor services and online resources and tools make it easy to build a customized investment strategy.
- Betterment: Through the Betterment app, you can start investing with as little as $10. This app lets you set your financial goals, risk level and starting amount. With these details, it automatically creates an investment plan to help you reach your goals.
4. Credit-related tools
Many people fail to understand the full impact their credit score has on their overall financial health. For instance, you may already know that your credit report and credit score can impact your ability to secure a credit card or obtain a car or home loan. But did you also know your credit score can determine your ability to rent an apartment, land a job or set up utilities in your name without a deposit?
It’s crucial you stay up to date on your credit score and credit report. First, tracking your credit can alert you to drops in your score and give you time to take steps to address any issues. Second, understanding issues on your credit report lets you create a strategy for repairing or rebuilding your credit.
Finally, regularly examining your credit report can help you quickly identify any errors that are wrongfully hurting your credit and take steps to fix them. It can also help you guard against identity theft.
You’re entitled to request one free copy of your credit report each year from each of the three major credit bureaus—Experian, TransUnion and Equifax. But you don’t have to wait until the end of the year to track your credit. Instead, you can use Lexington Law’s free credit assessment and other paid services to get updated information related to your credit. Using a combination of these tools can help you get a better handle on your financial status and set up a strategy to improve your credit.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Source: lexingtonlaw.com
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Minnesota, known as the “Land of 10,000 Lakes,” blends natural beauty and city life. If you’re considering a move to this northern state, it’s essential to weigh the pros and cons of living in Minnesota. So, is Minnesota a good place to live? Let’s explore what makes it appealing and some challenges residents face.
Is Minnesota a good place to live?
Life in Minnesota is characterized by its stunning landscapes, friendly communities, and a strong emphasis on outdoor activities. The largest cities, Minneapolis and St. Paul, also known as the Twin Cities, boast a thriving arts scene, diverse culinary options, and numerous cultural festivals throughout the year. Major employers include Target, U.S. Bancorp, and the Mayo Clinic, contributing to diverse job market.
For opportunities to explore the outdoors, Minnesota offers a wealth of activities year-round. In the summer, residents can explore the state’s 10,000 lakes, with opportunities for kayaking, fishing, and swimming. The extensive trail system in parks like the Boundary Waters and the Superior Hiking Trail attract hikers and campers from all over. Whether you’re drawn to the thriving job market, the rich arts scene, or the endless outdoor adventures, Minnesota has something for everyone.
Minnesota state overview
Population | 5,706,494 |
Biggest cities in Minnesota | Minneapolis, Saint Paul, Rochester |
Average rent in Minneapolis | $1,649 |
Average rent in Saint Paul | $1,311 |
Average rent in Rochester | $1,464 |
1. Pro: Abundant outdoor activities
Minnesota is a great place to explore. With its 10,000 lakes and numerous parks, you can enjoy various activities year-round. In the summer, fishing, swimming, and boating on lakes like Lake Minnetonka or Lake of the Isles are popular pastimes. As the seasons change, the state’s natural beauty transforms, offering excellent opportunities for hiking in the lush forests, biking on scenic trails, and enjoying the vibrant fall colors. When winter arrives, residents can embrace snowshoeing, ice fishing, and skiing in places like Afton Alps.
Travel tip: Don’t miss the Boundary Waters Canoe Area Wilderness. This stunning location has pristine lakes and incredible opportunities for canoeing, fishing, and camping, making it perfect for a weekend getaway.
2. Con: The winters can be harsh
While the snow-covered landscape can be beautiful, winters in Minnesota can be brutal, with temperatures often plunging below freezing and snow accumulating frequently. This extreme weather can impact daily life, making commuting a challenge and limiting outdoor activities for some. The subzero temperatures can lead to icy roads and increased heating costs, forcing residents to bundle up and invest in winter gear.
3. Pro: Minnesotans are friendly
Minnesotans are known for their friendliness and community spirit, which is evident in the many local events and gatherings throughout the year. Neighborhoods often come together for community events, farmers’ markets, and festivals that celebrate local culture and history. Volunteering is a common practice, and many residents engage in initiatives that support local charities and businesses.
Insider scoop: Attend the Minnesota State Fair in late August to early September, where you can sample iconic local foods, enjoy live music, and experience the best of Minnesota culture.
4. Con: There are plenty of potholes to avoid
One of the more frustrating aspects of living in Minnesota is the prevalence of potholes, particularly during the spring months. The state’s harsh winter weather, with its constant freeze-thaw cycles, takes a serious toll on the roads, leading to an abundance of potholes. These road hazards can make driving less enjoyable and potentially cause damage to vehicles, such as flat tires or misaligned suspensions. In some areas, it can feel like you’re constantly dodging potholes on your daily commute, which can be a significant inconvenience for residents.
5. Pro: Rich cultural scene
The Twin Cities are home to a variety of museums, theaters, and galleries, including the Walker Art Center and the Minneapolis Institute of Art. These institutions host a wide range of exhibits and performances, showcasing local and international artists. Additionally, events like the Minnesota State Fair and the Twin Cities Jazz Festival highlight the state’s rich arts and music scene, offering opportunities for residents to explore and enjoy diverse cultural experiences.
Insider scoop: Take advantage of the Minneapolis Institute of Art, which offers free admission to its extensive collection of art from around the world. This gem not only showcases local artists but also hosts rotating exhibitions.
6. Con: High income taxes
Minnesota has one of the higher tax burdens in the country, which can be a drawback for some residents. State income tax rates can reach as high as 9.85% for those in higher income brackets, and property taxes can also be notable, impacting overall affordability. While these taxes fund essential services like education, healthcare, and infrastructure, they can strain budgets.
7. Pro: Commitment to sustainability
Minnesota is known for its commitment to sustainability and environmental protection. Many cities, including Minneapolis and St. Paul, promote green living initiatives, encouraging residents to adopt eco-friendly practices such as recycling, composting, and using public transportation. The state has also invested in renewable energy sources, making significant strides toward reducing its carbon footprint. Residents often engage in community efforts to protect local ecosystems and support sustainable agriculture.
Insider scoop: If you’re looking to get involved locally, check out Minnesota’s Zero Waste Challenge or volunteer with organizations like Minnesota Water Stewards, where you can actively contribute to keeping the state’s water sources clean and promote conservation efforts in your community.
8. Con: Limited public transportation
While the Twin Cities have a light rail system and bus services, public transportation options in other areas can be limited. Many suburban and rural communities lack comprehensive transit systems, which can make owning a car necessary for getting around. This limitation may be challenging for those who rely on public transport or prefer a car-free lifestyle. As a result, residents may need to budget for a vehicle and associated costs, such as insurance and maintenance.
9. Pro: Relatively lower cost of living in the state
One of the appealing aspects of living in Minnesota is its relatively lower cost of living compared to many other states, particularly in the Midwest. While cities like Minneapolis and St. Paul have seen rising housing costs, they are still more affordable than other major metropolitan areas in the U.S. The average rental rate for a one-bedroom apartment in Minneapolis hovers around $1,400 per month, while in smaller cities like St. Cloud, it’s significantly lower, averaging around $875. This lower cost of living makes Minnesota a good place to live for those looking to stretch their budget.
10. Con: Beware of the ticks
Ticks are a common nuisance in Minnesota, especially during the warmer months from late spring through early fall. These small, parasitic insects thrive in the state’s wooded areas, grassy fields, and even along hiking trails. The risk of tick bites can be a concern, as some ticks carry diseases such as Lyme disease and anaplasmosis. While enjoying Minnesota’s beautiful landscapes, residents must remain vigilant about tick prevention, including wearing long sleeves, using insect repellent, and conducting thorough tick checks.
Pros and cons of living in Minnesota: Overview
Pros | Cons |
Abundant outdoor activities | The winters can be harsh |
Minnesotans are friendly | Plenty of potholes |
Rich cultural scene | High income tax |
Commitment to sustainability | Limited public transportation |
Relatively lower cost of living in the state | Ticks are a common nuisance |
Source: rent.com
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Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions. In this episode:
Explore how the 2024 presidential candidates’ tax plans could impact your finances and what to know before voting.
What tax proposals are the 2024 presidential candidates making, and how might these policies affect your finances? What should you know before voting on tax issues? Hosts Sean Pyles and Anna Helhoski discuss the key differences in the candidates’ tax plans and how to make informed decisions to protect your financial future. They begin with a discussion of the importance of tax policy, with tips and tricks on understanding credits and deductions, how taxes fund government services, and the long-term effects of tax laws on your paycheck.
Then, Anna talks to Amy Hanaeur, the executive director of the left-leaning Institute on Taxation and Economic Policy, to discuss the candidates’ specific tax proposals. They discuss proposals to cut corporate taxes, extend expiring tax cuts, provide child tax credits, and eliminate taxes on Social Security benefits.
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Episode transcript
This transcript was generated from podcast audio by an AI tool.
Sean Pyles:
Taxes. Nobody likes them, but it’s how we pay for government, from local police and fire departments to the folks at the national level who make our currency and on and on. So what’s a fair and effective tax structure? That’s an argument democracies have been having since the Greeks came up with the system of government, and it’s an argument that we’re still having in earnest in the 2024 presidential campaign.
Amy Hanaeur:
Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans. So to the richest 20% of Americans. So just for a sense of what that would cost, in 2026 alone, that would cost more than $280 billion.
Sean Pyles:
Welcome to NerdWallet’s Smart Money podcast. I’m Sean Pyles.
Anna Helhoski:
And I’m Anna Helhoski.
Sean Pyles:
This is episode three of our Nerdy deep dive into presidential policy and personal finance. And today, Anna, it’s so exciting. We’re going to talk tax policy.
Anna Helhoski:
Wait, wait, don’t everybody leave yet. This is really important stuff. It has a huge effect on your bottom line, so you should know what the two presidential candidates are proposing to do with your tax dollars and then vote accordingly.
Sean Pyles:
Sometimes it’s hard to figure out exactly what this or that tax policy will do to your paycheck. There are proposals for credits and deductions and write-offs, and it can pretty quickly induce your brain to go on zombie status. But even just the broad strokes are important to understand, so we’re going to go through some of that today.
Anna Helhoski:
And remember, Sean alluded to this at the top of the show. Taxes pay for just about every government service you use. Every time you drive on a highway, every time you call 911. Every time you jangle cash in your pocket. Every time you pay for college with a federal student loan.
Sean Pyles:
Every time you get a letter delivered by the USPS. Every time you go to a national park. Every time your grandparents get a Social Security check. Every time you find yourself in a court of law. And every time you realize that national security is pretty important. All of that is the government at work and it’s funded by the money that comes out of your paycheck.
Anna Helhoski:
Is some government spending ridiculous? Yup. Some of my own spending is ridiculous, by the way, but I digress. You can argue over the size of government. A famous Republican anti-tax lobbyist named Grover Norquist once said his goal was to “reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” But it’s hard to imagine how anything would get paid for if there weren’t taxes, including all those other campaign promises that candidates are making.
Sean Pyles:
Right. How would anything get done if it weren’t for, you know… government? But as we’ve been saying throughout this series, the most important part of all of this is that you are an educated voter. That you understand how the presidential candidates’ tax policies could affect you.
Anna Helhoski:
And then take that knowledge to the ballot box and vote your conscience. Or for a lot of us, take that knowledge to the mailbox after you’ve filled in your ballot at home.
Sean Pyles:
I’ve got to say I really love voting from the comfort of my couch, usually in my pajamas. As we’ve noted previously, we want to say at the outset that we are not here to take sides or fan the flames of an already contentious political season. Our goal here is the same goal that we always have at NerdWallet: to help you, our listeners, make smart informed decisions about the stuff that impacts your finances. Sometimes that means choosing the right credit card for your needs. Other times, that means voting for the candidate who you believe will help you achieve your life and financial goals. All right. Well, we want to hear what you think too, listeners. To share your thoughts around the election and your personal finances, leave us a voicemail or text the Nerd hotline at 901-730-6373. That’s 901-730-N-E-R-D, or email a voice memo to [email protected]. So, Anna, who is helping us sort through tax policy today?
Anna Helhoski:
Today, we’re speaking with Amy Hanaeur. She’s the executive director of the left-leaning Institute on Taxation and Economic Policy. Amy Hanaeur, thank you so much for joining us.
Amy Hanaeur:
Thanks for having me.
Anna Helhoski:
Unsurprisingly, Kamala Harris and Donald Trump have introduced some pretty different tax plans. So to kick off our discussion, I’m hoping you can give an overview of what stands out most to you in these plans.
Amy Hanaeur:
I would say there’s a pretty dramatic difference between Vice President Harris’s tax proposals and former President Trump’s tax proposals. It’s one of the biggest policy differences between these candidates.
Vice President Harris has plans to raise revenue from wealthy people and corporations. She’s also a little more concrete about her plans for the child tax credit, which helps middle-class families with children and other families with children. Trump has kind of a history of slashing taxes in ways that largely redound to wealthy people and corporations. He has also put forth some middle-class tax cuts. Those also will go to the wealthiest as well as to middle-class families. So I think his proposals all in all are more expensive and can make it a little harder to pay for the things that are spending priorities for either party.
Anna Helhoski:
Harris has come out with a number of tax breaks, including up to $50,000 for new small businesses, a $25,000 housing tax credit for first-time home buyers, and an increased child tax credit that includes $6,000 for new parents. Would these be effective policies and walk us through their feasibility?
Amy Hanaeur:
I would say that the $6,000 newborn child tax credit along with her proposal to restore the expanded child tax credits for older children that took place during the pandemic are very proven, very effective policies. And we know that the expanded child tax credit cut poverty almost in half. We know that it helped lots and lots of middle-class families. And we know that even at a time when unemployment was sky high, those child tax credits kept the economy moving and kept a lot of families solvent. And the new expanded $6,000 that she’s proposing for newborns is really important because that first year is so important developmentally for children, and so for families to have a little bit more resources in that first year, I think, makes a lot of sense.
The other two things that you asked about I think are a little more marginal in their effect and maybe not the very best approaches. The tax break, the $50,000 for new businesses is a little complicated because a lot of new businesses don’t actually earn enough to pay taxes. And so they would probably stretch that until when they are profitable, and then they would reduce their taxes once they are profitable further down the road. We just don’t think that that makes as much sense as some other approaches. The tax credit for new home buyers is an interesting idea. I think the Vice President is pairing that with some activities on the supply side to make sure that there’s more housing. But I think that those supply-side activities are a crucial part of that because if you just give a tax credit to new home buyers, it could end up driving up the cost of housing. I don’t think it’s the most important or the strongest part of her tax proposals.
Anna Helhoski:
And we need to have more housing supply in order to have more first-time home buyers.
Amy Hanaeur:
Anna Helhoski:
I want to shift over to Trump. He certainly wants to extend the 2017 tax cuts made under his administration, and he said he plans to lower the corporate tax rate even further. Can you remind us what was in the 2017 Tax Cuts and Jobs Act and what is set to expire next year? I know it was a complex law, but if you could give us the highlights.
Amy Hanaeur:
The 2017 tax law really cut the corporate rate from 35% to 21%, and the result of that was that corporate tax payments plummeted, and a lot of huge profitable corporations continued to pay far below the statutory rate. So the rate was 21%, but actually, lots and lots of corporations pay much, much less than that. Our research shows, and the research of a lot of other scholars shows that these kinds of cuts increase income and racial inequality. They also… This is kind of important. They send a massive windfall like 40 cents of every dollar to foreign investors because foreign investors own 40% of corporate stocks. That is just not a very well-targeted proposal, and it would really cost us a lot in revenue, which could reduce the ability of either party to execute on their spending priorities.
Anna Helhoski:
Has the former president said he wants all of those tax cuts renewed? Are there any proposed changes or is it just an extension?
Amy Hanaeur:
The corporate tax rate that I was just talking about is actually permanent, the cut that they already made. But as you said, he’s proposing further cuts to that corporate rate. So that’s a new proposal. That’s not an extension. The part that they made temporary were the individual components of the 2017 tax law, and they did that because it cost too much and it wasn’t possible to pass it with the policy mechanism that they were trying to use at the time because they were trying to do it with only one party’s support. In order to get it below the overall cost limit that is imposed on Congress, they made the individual tax cuts temporary. Former President Trump has said that he wants to extend all of the individual tax cuts that were in that 2017 law.
Anna Helhoski:
What has Harris said about that tax legislation?
Amy Hanaeur:
Well, she has said that with all of her tax cuts, there would not be a situation in which somebody earning less than $400,000 pays more. She has said that for the individual tax cuts, she wants to extend them for those earning less than $400,000 but phase them out over $400,000. I can say a little more about what the 2017 law did distributionally.
Anna Helhoski:
Amy Hanaeur:
If that’s helpful.
Anna Helhoski:
Absolutely.
Amy Hanaeur:
That law as a whole did deliver really large tax cuts to those in the top 1%, and that’s kind of a narrow sliver. I’m talking there about people with income over $800,000 a year. These cuts are the part that expire in 2025, but the Trump campaign wants to make them permanent. Two-thirds of the cost of making those individual tax cuts permanent would go to the richest fifth of Americans, so to the richest 20% of Americans. So just for a sense of what that would cost, in 2026 alone, that will cost more than $280 billion. It really does start to cut into revenue.
Anna Helhoski:
Have you seen any shifts in where Trump’s tax policy proposals are now versus when he was president?
Amy Hanaeur:
I would say that he’s kind of looking to just intensify his previous approach. Now, he’s floated some other things and his vice-presidential candidate has floated some other things, but in terms of concrete things on paper, it’s a little bit more of the same. He talked about, for example, repealing the tax on Social Security benefits. It would lower taxes for US households, I think, by an average of about $550 per household. But it would come with a big price because it would reduce Social Security and Medicare revenues by about $1.5 trillion over the next decade.
Anna Helhoski:
I want to talk specifically about Trump’s tariff proposal. He wants to do a 10% to 20% across-the-board tariff on all imports and up to 60% for goods from China. He has also suggested replacing personal income taxes with these new tariffs. Amy, how do tariffs on foreign countries and taxes for Americans intertwine?
Amy Hanaeur:
This is a sort of surprising proposal because it’s a real departure from the traditional way that Republicans have approached this issue. And frankly, a departure from how Democrats have approached this issue in recent years as well. Most economists absolutely agree that tariffs fall on consumers, but there can be reasons why advocates for particular industries, sometimes the owners, sometimes the workers, may want them at different times for particular economic development reasons or retaliatory reasons if they think that another country has appropriated a technology or industry that we had previously dominated in. I think what’s really challenging about the Trump proposal is that it is so across-the-board, and also that he hasn’t been very clear about exactly what he would do. So at some times, he has talked about 10% across-the-board tariffs. At other times, he has talked about 20% across-the-board tariffs. That’s a pretty big difference. And then he’s talked about, as you said, the additional 60% on China. An economist named Kim Clausing estimated 20% across-the-board tariffs would cost the typical household $2,600 a year. It’s a substantial hit to families and it manifests itself much in the way that inflation does. It would just be basically every product that every household buys would end up costing more.
Anna Helhoski:
Now, the Biden administration has largely kept the tariffs that Trump imposed during his previous term. What has Harris said about that and her view in general on tariffs?
Amy Hanaeur:
I’m not sure that she has said that much. I think that this is a part of the Biden administration policy that they are perhaps somewhat quiet about. I think it’s challenging to repeal those tariffs for political reasons. But I think from a policy perspective, it’s just important to note that they do fall on households. They’re not as large as those 20% across the board and 60% on China tariffs that the former president is putting forth. So they don’t have the same kind of impact, but it is kind of universally accepted that those kinds of tariffs do fall on consumers in terms of increasing prices.
Anna Helhoski:
More of our interview in a moment. Stay with us. Amy, real quick, I just want to turn back to Social Security for a second. Trump had said that he wants to get rid of the tax on Social Security. What would be the impact of that on the average American? What would that mean for their paychecks right now and for the prospect of them having Social Security when they reach retirement age?
Amy Hanaeur:
The Tax Policy Center did an analysis of this proposal and found that it would lower taxes for US households by an average of $550 a year. But at a big, big cost because it would end up reducing revenues in Social Security and Medicare by about $1.5 trillion with a T over the next decade. This would end up driving both programs into insolvency much faster, and so it would end up resulting in sharply reduced benefits for tens of millions of recipients. And the Tax Policy Center has not yet estimated, I don’t believe, the exact nature of those benefit reductions, but we know that Social Security is just one of our most important social programs, pulls a huge number of people out of poverty. The elderly used to be the poorest population age group in the United States, and after Social Security was put in place, they became the least likely to be poor among American households. So it’s really a huge part of our social safety net and just a huge part of our society.
Anna Helhoski:
Now, Trump and Harris don’t agree on very much, but one place where there is overlap is that both candidates have proposed to lift the tax on tips. Can you explain that for us and what it would mean for the average American, both those who receive tips and those who pay them?
Amy Hanaeur:
Getting rid of taxes on tips is probably more about politics than about creating a great public policy. First of all, a very small share of the workforce receives all of its income from tips. And so it would be kind of flawed because do we really think that a waitress who earns a very modest salary and a teacher’s aide or a teacher or a nurse’s aide who earns a really modest salary, do we really think that the waitress should pay a lower tax rate than a teacher or teacher’s aide or nurse’s aide who earns the same amount? And that would be the effect of this policy. It would also really encourage shifting some compensation to tips. So high-paid professionals could ask that their fees instead be structured as tips.
Now, Vice President Harris does have a check in place for her proposal that kind of gets at that because she has suggested ways that it could be targeted toward those earning under $75,000 a year. That certainly makes a big difference in terms of the possibility for gamesmanship by very wealthy earners. But fundamentally, we just think there are better ways at getting at helping low-wage workers who receive tips. Namely, we could get rid of the tipped wage. We could say that every worker deserves a minimum wage. The sub-wage for tipped workers is $2.13 an hour at the federal level. So we’re talking about a ridiculously low wage in 2024.
Anna Helhoski:
It seems like either candidate will struggle to bring forth most of these proposals if there’s not enough support in Congress. Either Harris’s or Trump’s proposals, what do you see there being congressional support for? And is there anything that Harris or Trump could do unilaterally?
Amy Hanaeur:
Obviously, a lot depends on the composition of Congress. So if either side gets a trifecta, if we have Republicans taking both Houses and the presidency, I would expect that former President Trump would be able to again cut taxes on billionaires and again cut taxes on corporations. I don’t think his Social Security proposals would go through under any party because Social Security is sort of famously the third rail of American politics, and it really does disrupt our social structures to think about reducing the funding available to pay for Social Security.
For Vice President Harris, if she were to get a trifecta, I think she would probably succeed in getting some of those revenue raisers. I could see her getting through the extensions of the individual tax cuts for those earning less than $400,000 but getting rid of them for those earning more. And in the perhaps most likely situation where we have divided government, I think a lot of this would be up for debate, and I think we’d end up seeing some mishmash of these two approaches.
Anna Helhoski:
Amy, what have we not seen Kamala Harris or Donald Trump weigh in on that you think is an oversight?
Amy Hanaeur:
There are pieces that are in Kamala Harris’s written proposals that don’t get a lot of attention. And one of the big ones is something very obscure called stepped-up basis. Sometimes people call it buy, borrow, and die. That basically says that for very wealthy people, if they acquire stocks or other assets that really grow in value over the time that they own those assets, that if they pass those on to heirs without selling them first, nobody ever pays taxes on the difference in value. So that’s always something that I think should get more attention. But it’s complicated to explain. As you can see with my efforts to explain it, it’s just complicated. And it’s easier to say, “We’re going to raise the corporate tax rate or we’re going to lower the corporate tax rate.” I think that’s something that could get more attention.
Anna Helhoski:
Is there anything else you want to call out about Harris or Trump’s tax plans?
Amy Hanaeur:
I would just say the big picture is: The Harris approach raises more revenue. It raises it primarily from the wealthiest and corporations. The Trump approach puts us deeper in debt and gives a lot more away to wealthy people and corporations. And both of them, I think, have some proposals that would help middle-class families on the tax side.
Anna Helhoski:
All right. Amy Hanaeur, thank you again for talking with me today.
Amy Hanaeur:
Yeah, thank you so much.
Anna Helhoski:
Sean, I want to emphasize one thing before we wrap up, and that’s how much authority the Executive Branch has to change taxes. The president does technically have the power to tax, but they generally don’t exercise that. What they do is press Congress to pass policies that they want. What we don’t know right now is what campaign promises will have bipartisan appeal once we have both a new administration and a new congressional makeup.
Sean Pyles:
You know, Anna, tax is a funny thing, where you make one change in one area and it can have drastic, sometimes unintended ripple effects in other areas. Two examples that come to mind are how Harris providing a tax credit for first-time home buyers could drive up home prices, and how Trump’s tax cuts exacerbated racial and wealth inequality. And these examples underscore how complicated and confusing tax policy can be. But it’s really, really important for all of us to engage with this since a number of components of the Tax Cuts and Jobs Act of 2017 will sunset in 2025. So we have a unique opportunity right now to reshape taxes and our votes will have a hand in that.
Anna Helhoski:
And one thing that Amy Hanaeur didn’t delve too deeply into is the no tax on tips policy that both Trump and Harris are endorsing. But fortunately, listeners, we did go into no tax on tips in a previous episode. So have a listen to our August 21st episode on that topic, which we’ll also link to in today’s show notes.
Sean Pyles:
Anna, tell us what’s coming up in the fourth and final episode of the series.
Anna Helhoski:
Sean, we’re going to talk about two specific areas of policy that affect a large swath of voters: student loans and healthcare.
Eliza Haverstock:
The fate of the repayment plan is now largely in the hands of the courts. However, the president can influence the situation by directing the Justice Department how to proceed with appeals. Harris would likely continue to vigorously defend the SAVE plan in court. Meanwhile, Trump is not likely to defend SAVE.
Anna Helhoski:
For now, that’s all we have for this episode. Do you have a money question of your own? Turn to the Nerds and call or text us your questions at (901) 730-6373. That’s (901) 730-N-E-R-D. You can also email us at [email protected]. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes.
Sean Pyles:
This episode was produced by Tess Vigeland and Anna. I helped with editing. Rick VanderKnyff and Amanda Derengowski helped with fact-checking. Megan Maurer mixed our audio. And a big thank you to NerdWallet’s editors for all their help.
Anna Helhoski:
And here’s our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances.
Sean Pyles:
And with that said, until next time, turn to the Nerds.
Source: nerdwallet.com
Apache is functioning normally
Google “paycheck to paycheck” and you’ll be flooded with statistics that seem a bit suspect to an economist’s eye. Diving deeper into the spending habits of people who say they’re living with every dollar spoken for, it’s clear we’re not all defining paycheck to paycheck quite the same way. And it’s clear that some who assign themselves to this group could just be very efficient budgeters.
More than half of Americans (57%) say they’re currently living paycheck to paycheck, according to a nationally representative NerdWallet survey conducted online in July by The Harris Poll. In our survey, we didn’t define the phrase, as we wanted to measure the share of folks who identify with “living paycheck to paycheck” regardless of their finances. Then, we asked for some budget specifics.
Of those who said they’re living paycheck to paycheck, many regularly contribute to savings accounts (31%), retirement accounts (22%), or emergency savings funds (22%), all of which are important, but none of which are obligatory. And others include house cleaning services (15%) and subscription boxes (19%) among their regular monthly [expenses.
In fact, 42% of Americans with household incomes of $100,000 or more say they live paycheck to paycheck.
So, what does living paycheck to paycheck mean?
By not defining the phrase in our survey, we hoped to understand how people feel about their financial condition more than whether they fit a tidy definition. Generally, living paycheck to paycheck implies all or most of your money from one paycheck is gone before or right in time to receive the next. And for many people, it implies some level of financial hardship.
But, it turns out depleting one paycheck just in time for the other’s arrival doesn’t have to mean financial dire straits. In fact, our survey found many people who place themselves in this category manage to spend on some monthly luxuries as well as have emergency savings and retirement accounts.
Addressing the feeling of financial constraint
When someone says they’re living paycheck to paycheck, it could be that they’re tightly budgeted. Emergency funds and retirement accounts, for example, are generally features of more financially secure households.
Some popular approaches to budgeting involve allocating your income toward various categories — 50% for needs, 30% for wants and 20% for savings and debt payments, in the case of the 50-30-20 budget, for example. And if 100% of what you bring in is earmarked for various purchases or accounts, you could consider yourself paycheck to paycheck, yet still doing quite well.
If you’re feeling like the well is dry when your next paycheck arrives, take a closer look at how you’re allocating your monthly income. You may find yourself on-track to long-term financial goals and able to afford some of the extras each month that enrich your life, even if your spending account dwindles toward the end of the pay period. If this is the case, and the tightly allocated budgeting feels fine, pat yourself on the back for being an astute financial manager. But if the dwindling feels bad, consider budgeting a buffer into that primary spending account or loosening the limits on your variable “wants” expenses each month. In this way, your “fun money” comes from one place, it rarely runs completely dry and you enjoy a bit of flexibility.
When living paycheck to paycheck means serious hardship
For some, however, living paycheck to paycheck happens because the money coming into the home just isn’t enough to cover the needs of the household. In this case, clever budgeting can only get you so far. According to the Federal Reserve, 63% of adult Americans in 2023 could manage an unexpected expense of $400 using cash, savings or a credit card they paid off right away. There’s a good chance the remaining 37% would describe themselves as living paycheck to paycheck.
Building a $400 emergency fund can be a tall order when you truly have nothing leftover at the end of the month. But every bit that gets you closer can be helpful. While you incrementally build a small safety net, have a financial hardship plan in place should things take a turn for the worse.
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Prioritize crucial expenses like housing, utilities, food and medical care.
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Contact your creditors and other bill collectors to explain your situation and ask about any hardship programs they offer.
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Identify local charities and organizations that can help in times of need and reach out to your state or county social services if you think you might qualify for government assistance.
METHODOLOGY
This July survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from July 16-18, 2024, among 2,076 U.S. adults ages 18 and older. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For these studies, the sample data is accurate to within +/- 2.5 percentage points using a 95% confidence level. For complete survey methodologies, including weighting variables and subgroup sample sizes, please contact [email protected].
Disclaimer
NerdWallet disclaims, expressly and impliedly, all warranties of any kind, including those of merchantability and fitness for a particular purpose or whether the article’s information is accurate, reliable or free of errors. Use or reliance on this information is at your own risk, and its completeness and accuracy are not guaranteed. The contents in this article should not be relied upon or associated with the future performance of NerdWallet or any of its affiliates or subsidiaries. Statements that are not historical facts are forward-looking statements that involve risks and uncertainties as indicated by words such as “believes,” “expects,” “estimates,” “may,” “will,” “should” or “anticipates” or similar expressions. These forward-looking statements may materially differ from NerdWallet’s presentation of information to analysts and its actual operational and financial results.
Source: nerdwallet.com
Apache is functioning normally
A debt instrument is a contract that enables one party to loan funds to another party, who promises to repay the loan plus interest. Debt instruments are also referred to as fixed income assets because the lender receives a fixed amount of interest during the lifetime of the instrument.
Debt instruments come in many forms. Some are obvious, such as mortgages and different types of small business loans; while others are less so, such as rental leases, bonds, and treasuries. With some debt instruments, you are the borrower, such as when you take out a mortgage or open a credit card. In other cases, you are the lender, such as when you purchase a bond or treasury.
Here’s what you need to know about debt instruments, the different types of debt instruments, how these instruments work, and the pros and cons of debt financing.
Key Points
• Debt instruments are financial assets that represent a loan made by an investor to a borrower, typically involving fixed payments over time.
• Common types of debt instruments include mortgages, small business loans, bonds, U.S. treasuries, and leases.
• Debt instruments come with a defined maturity date when the principal amount must be repaid.
• All debt securities are debt instruments, but not all debt instruments are securities.
What Is a Debt Instrument?
A debt instrument is a fixed income asset that legally binds a debtor to pay back any amount borrowed plus interest. Debt instruments can be issued by individuals, businesses, local and state governments, and the U.S. government.
Businesses often use debt instruments to raise capital to purchase additional assets (such as manufacturing equipment) or to raise working capital, while local governments may do so to fund the building of infrastructure (such as a new highway or a bridge). Debt instruments also give participants the option to transfer the ownership of debt obligation (or instrument) from one party to another.
Debt instruments can be short-term (repaid within a year) or long-term (paid over a year or more). Credit cards and treasury notes are examples of short-term debt instruments, while long-term business loans and mortgages fall into the category of long-term debt instruments.
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Debt Instruments vs Debt Securities
Debt instruments are broad financial tools representing a loan made by a lender to a borrower, including mortgages, business loans, and leases. They may or may not be tradable.
In contrast, debt securities are a specific subset of debt instruments that are tradable on financial markets, such as government and corporate bonds. Debt securities provide liquidity, allowing investors to buy or sell them before maturity.
The key difference is that all debt securities are debt instruments, but not all debt instruments are tradable securities, emphasizing market accessibility and liquidity for debt securities.
How Do Debt Instruments Work?
If you’ve ever taken out a loan or opened a credit card, you probably already understand the basics of how debt instruments work. Debt instrument contracts include detailed provisions on the deal, including collateral involved, the rate of interest, the schedule for interest payments, and the term of the loan (or timeframe to maturity).
While any type of vehicle classified as debt can be considered a debt instrument, the term is most often applied to debt capital raised by institutions, such as companies and governments. In this scenario, the investor is the lender: You issue money to a business, municipality, or the U.S. government. In exchange for capital, you are paid back the amount you loaned over time with interest. Examples of this type of debt instrument include U.S. treasuries, municipal bonds, and corporate bonds.
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Types of Debt Instruments
Below is a breakdown of some of the most common debt instruments used by individuals, governments, and companies to raise capital.
US Treasuries
U.S. Treasury Securities (also called treasuries) are government debt instruments issued by the U.S. Department of the Treasury to finance government spending as an alternative to taxation. Treasury securities are backed by the full faith and credit of the U.S., meaning that the government promises to raise money by any legally available means to repay them.
U.S. treasuries tend to be more affordable than many other debt instruments. Investors can buy them in increments of $100 either through brokerage firms, banks, or the U.S. Treasury website. There are three types of treasuries: treasury bills, treasury notes, and treasury bonds. Each treasury comes with its own maturity option.
Municipal Bonds
Municipal bonds are offered by various U.S. government agencies (towns, cities, counties, or states) to fund current and future expenditures. Programs often funded by municipal bonds include the building of schools, roads, and bridges. Think of a municipal bond as a loan an investor makes to a local government.
There are two types of municipal bonds: general obligation bonds and revenue bonds. General obligation bonds are not paid back by any revenue resulting from the completion of the project. Instead, they are paid back to investors through property taxes or overall general funds.
Revenue bonds are paid back by the issuer through either sales, taxes, or some other type of revenue generated by the project.
Municipal bonds are attractive to many investors because they are tax-exempt bonds — meaning the investor doesn’t have to pay taxes on any interest received.
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Corporate Bonds
A corporate bond is a debt security that a corporation can use to raise money. Funding is typically available to anyone who is interested. As with other bonds, corporate bonds are essentially an IOU from the company to the investor. It differs from stock in that, instead of being paid dividends when the company is profitable, investors are always paid regardless of whether the company is doing well.
Typically, corporate bond investors are paid interest until the bond matures. When it matures, the entire principal is paid back. For example, a $1,000 corporate bond with an interest rate (or coupon rate) of 5% would bring an investor $50 every year until the bond matures. This means that, after 10 years, the investor would see a gross return of $500.
With secured bonds, the company puts up collateral (such as property or equipment) as security for the bond. If the company defaults, secured bond holders can foreclose on the collateral to reclaim their money. With an unsecured bond, a holder may or may not be able to fully reclaim their investment.
Alternative Structured Debt Security Products
There are many types of structured debt security products on the market, many of which are issued by financial institutions. A common occurrence is for these institutions to bundle assets together as a single debt security product. By doing this, they are able to raise capital for the financial institution while also segregating the bundled assets.
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Leases
A residential or commercial lease is a legally binding contract between an owner of a property and a tenant, where the tenant agrees to pay money for a set period of time in exchange for use of the rented property. A lease is a type of debt instrument because it secures a regular payment from the tenant, thus creating a secured long-term debt.
Mortgages
Mortgages are a type of debt instrument used to purchase a home, commercial property, or vacant land. The loan is secured by the property being purchased, which the lender can seize if the borrower defaults on the loan.
As with many other consumer loan products, mortgages are amortized, meaning the borrower makes a series of equal monthly payments that provides the lender with an interest payment (based on the unpaid principal balance as of the beginning of the month) and a principal payment that will cause the unpaid principal balance to decrease each month so that the principal balance will be zero at the time of the final payment.
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Pros and Cons of Debt Instruments
Understanding the pros and cons of debt instruments helps borrowers make informed decisions about their financing options.
Pros
Debt instruments can be mutually beneficial in that both parties become better off as a result. If a company takes out a small business loan and invests those funds wisely, for example, it can increase its profitability. Ideally, the increase in profits exceeds the cost of the loan, a concept known as leveraging in business. Borrowing money also allows a company to raise capital without losing equity.
Debt instruments also benefit individuals and governments. Without mortgage debt, many people would never be able to buy a house; without student loans, many individuals would not be able to go to college. For governments, debt instruments allow them to build infrastructure for the public good.
On the lender’s or investor’s side, debt instruments can provide a regular and guaranteed source of income and are considered a safe investment, provided the loan is secured.
Cons
But there are downsides to debt instruments, as well. Loans often come with restrictions on how they can be used and, if you don’t have good credit, interest rates can be high. Borrowing money also involves risk. Most commercial institutions will require you to put up collateral in the form of a property asset. If you lose your income or your business hits hard times and you cannot repay your loan, the lender can reclaim its debt by liquidating whatever you proposed as security, which means you can lose a valuable asset.
On the lender’s or investor’s side, debt instruments also come with risk. Unless you purchase a secured bond, you may not receive your principal back as the investor. Also, during periods of high inflation, bonds can actually have a negative rate of return. And, if you invest in corporate bonds, there is always the possibility that the issuer will default on payment.
Pros of Debt Instruments | Cons of Debt Instruments |
---|---|
Allows companies to expedite their growth | If a borrower has poor credit, interest rates can be high |
Allows companies to raise capital without diluting equity | Loans often come with restrictions on how they can be used |
Enables individuals to buy a home or pay for college | Loans often require collateral, which can be lost if debtor defaults on loan |
For lenders/investors, secured debt is a safe investment | Investors can lose money if bond value declines |
For lenders/investors, debt instruments provide steady income | Bond investors can lose money during periods of high inflation |
The Takeaway
A debt instrument is a way for an investor to get a return on their money by loaning to either an individual, business, municipality, or the U.S. government. If you have a credit card or mortgage, or you own any bonds or treasuries in your investment portfolio, debt instruments play a role in your life.
Small business owners can also take advantage of debt instruments. You might not be able to issue corporate bonds at this stage of the game, but you may be able to access an affordable small business loan.
If you’re seeking financing for your business, SoFi can help. On SoFi’s marketplace, you can shop top providers today to access the capital you need. Find a personalized business financing option today in minutes.
With SoFi’s marketplace, it’s fast and easy to search for your small business financing options.
FAQ
What are some examples of debt instruments?
Common examples of debt instruments include personal loans, business loans, mortgages, leases, bonds, treasuries, promissory notes, and debentures.
What is the difference between a debt instrument and an equity?
With a debt instrument, the investor does not own any portion of the company. With equity, the investor is buying a portion of the company.
What are the features of debt instruments?
Debt instruments have three characteristics: principal, coupon rate, and maturity. Principal refers to the amount that is borrowed. The coupon rate is the interest amount paid by the borrower to the lender. Maturity is the end date of the debt instrument. It refers to when the debt is completely paid off with interest.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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Apache is functioning normally
Moving out of your parents’ house for the first time can feel exciting. Freedom, peace, and no one telling you what to do. But in reality, it’s not as easy—or as cheap—as it looks. There are hidden costs you may not have considered, and careful budgeting is key. You’ll also need to save enough money before making the leap to your own place. So, how much should you have saved before taking the plunge? Let’s break down the costs and help you figure out exactly how much you need to move out on your own.
So, how much money should you save before moving out?
Moving out is more expensive than you might think. While the cost of moving and monthly rent payments certainly factor into the cost, there’s so much more to consider. The actual amount varies depending on the person, but the general recommendation is to have six months worth of living expenses saved up before you move out and live on your own. Obviously, this can vary widely depending on where you live, as the cost of living in an apartment in Waco, TX pales in comparison to what you’ll pay in a San Francisco apartment. Let’s break down some of the expenses you’ll have to account for.
First, assess your current spending
Before you determine how much money you’ll need to move out, it’s crucial to evaluate how much you’re spending right now. Start by reviewing your last six months of bank statements. Break down your expenses into categories such as transportation, entertainment, food, and subscriptions. This will help you see what your monthly spending looks like and where your money is going.
Don’t overlook debts. If you’re making regular payments on student loans, a car, or credit cards, consider how these obligations will affect your ability to pay rent and other living expenses. If your current debt load feels overwhelming, try to pay down some of it before making the move to your own place. Understanding your current spending habits will give you a solid foundation to start building a budget for life after you move out.
Determine how much rent you can afford
One of the most important steps in moving out is determining how much rent you can realistically afford. A common reccomendation is that you should be spending no more than a third of your monthly take-home income on rent. To figure this out, start by calculating your monthly income after taxes. Multiply that amount by 0.30 to get the maximum rent you should consider. For example, if you take home $3,000 per month, you’d aim to spend no more than $900 on rent.
Keep in mind, this 30% rule is just a guideline. If you have other significant financial commitments, like loan payments or savings goals, you may need to adjust your rent budget accordingly. On the other hand, if you’re in a lower-cost area or sharing rent with roommates, you might be able to afford a higher percentage.Take a look at the average monthly rent in the city or area you wish to find a place. This will give you an idea of where you can afford to live and how much you’ll expect to pay.
Budget for additional upfront fees
Rent is just one part of the cost of leasing your first apartment. Before you even move in, you’ll need to prepare for several upfront fees. These expenses can catch you off guard if you’re not aware of them, so it’s important to budget for them alongside your rent.
Common fees include:
- Application fee: Often ranging from $50 to $100, this fee covers the cost of processing your rental application.
- Background check fee: Landlords typically charge between $35 and $75 to run a background check as part of the rental process.
- Credit check fee: This can cost anywhere from $30 to $50, depending on the landlord.
- Security deposit: Usually equal to one month’s rent, but it could be as high as two months’ rent in some cases. This deposit protects the landlord in case of damage or unpaid rent.
- First and last month’s rent: Many landlords require both upfront to ensure you don’t skip out on the lease.
- Move-in fees: These can range from $100 to $500, depending on your building, and are meant to cover elevator usage or building staff during your move.
- Pet fees: If you have a pet, expect to pay a pet deposit or pet rent. Deposits may range from $200 to $500, while pet rent could add $25 to $50 per month to your rent.
Altogether, these fees can add up quickly, so be sure to include them in your budget as you plan for your move. By knowing what to expect, you can avoid surprises and make the transition to your new home smoother.
Factor in basic apartment necessities
But all those fees aren’t the only things you’ll need for your first month. Your apartment is empty, your cupboards are bare. You’ll need to stock up on cleaning and cooking supplies.
Before you settle in, you’ll need to shop for toilet paper, tissues, paper towels, garbage bags, laundry soap, dishwashing liquid, all-purpose cleaner, lightbulbs and other apartment essentials.
Don’t plan on ordering food every night, as that cost can add up quickly. You’ll have to cook at home to keep expenses down. In the kitchen, the cabinets and fridge will need to be filled with basic necessities like flour, sugar, baking soda, and vegetable oil, not to mention cookware. Be prepared to pay upwards of $200 to fill your pantry and supply closet.
Don’t forget utilities and recurring expenses
As soon as you move in, you’ll have to start to pay your monthly bills for recurring expenses. Utilities will consist of your electric bill to run your heat, air conditioning and appliances, your water bill and (in some apartments) a natural gas bill. Expect to pay between $125 and $175 a month in basic utilities.
There are additional monthly utility costs, as well, including internet access and cable or streaming services. If you’re cutting the cord and can still stay on your parents’ Netflix and Hulu account, you’ll save a ton, but you’ll still need an internet connection from your cable company or another provider.
You might also face monthly fees for garbage pickup, recycling, sewer and even parking. And don’t forget about your cell phone bill.
Do some research on the average costs of these services in the area to which you’re planning to move, and calculate how they fit into your budget. Pay all your bills on time, and don’t make the mistake of falling into debt and ruining your credit score.
Moving costs
Then there’s the cost of actually moving. Depending how much stuff you have, how much furniture you’re bringing with you and how far away you’re moving, your costs will vary. The average cost of hiring a moving company. Save some cash by having friends help or borrowing a truck.
Regardless of your furniture situation, you’ll need to budget for some. Even if you’re simply moving your own furniture into your new apartment, you’ll likely need to rent a moving truck or hire professional movers to haul that bed, couch and other large items.
If you decide to buy new furniture, try to keep costs down by hitting thrift stores and Facebook Marketplace. Renting a partially furnished apartment may be a more efficient option even if you’ll pay a bit more in rent.
Account for lifestyle costs
When you move out of your parents’ house, your lifestyle expenses are likely to increase. Beyond rent and utilities, you’ll need to account for everyday living costs that can add up quickly. These include groceries, transportation, entertainment, dining out, and personal items like clothing or toiletries.
If you’re used to sharing household responsibilities or having meals provided, managing all of this on your own can be an adjustment. Groceries alone can be a significant expense, especially if you’re not accustomed to meal planning or cooking at home. You’ll also need to factor in transportation costs, whether it’s fuel for your car, public transit passes, or rideshares.
It’s also important to think about how you’ll spend your free time. If you’re someone who enjoys going out frequently or spending on hobbies, you’ll need to adjust your budget accordingly to ensure you can maintain the lifestyle you want while still covering your essentials.
Keep an emergency fund
Aside from all that, you should put away as much as you are able in case of emergency or job change. Always keep somewhere between $500 and $2,000 aside for unexpected health, car or other circumstances — and don’t touch it.
Ready to move? Make sure you’re financially prepared
Now that you know the true cost of leaving the nest, you can compare it to your paycheck and determine if you can afford to move out, how much rent you can manage and how much you must save. Remember, you’ll need to be able to cover six months of these expenses to be comfortable. The last thing you want to do to yourself is miscalculate your expenses and have to move back in with your folks.
Source: rent.com
Apache is functioning normally
You likely already know it can be wise to save money every month. Whatever your income or age, putting money aside for the future can help you maintain financial stability and achieve your goals.
But how much of your paycheck should you save each month? Financial professionals often recommend putting at least 20% of your monthly take-home income into savings for future financial goals, such as buying a home and funding your retirement.
Exactly how much you should save each month, however, will depend on your income, current living expenses and financial obligations, as well as your goals.
Here are some guidelines to help you figure out how much of your income you may want to set aside each month, plus some simple ways to jump start (or build) your savings.
Key Points
• Financial advisors often suggest saving at least 20% of your monthly take-home income for future goals.
• A common budgeting technique is using the 50/30/20 rule: putting 50% of income toward essentials, 30% toward non-essentials, and 20% toward savings.
• One easy way to increase savings is to automate recurring transfers from checking to savings accounts.
• Funneling windfalls into savings and using roundups – a tool that autosaves the difference between a purchase price and the nearest dollar — can also boost savings.
• One of the most effective ways to save money is to determine your near-term and long-term financial goals and to track spending and progress in a budget.
Knowing What You’re Saving For
It can be difficult to know how much money you should save each month without having a sense of what you are saving for. Setting a few financial goals can also help motivate you to save, rather than spend all of your income.
There are some savings goals that can make sense for everyone. If you don’t already have at least three to six-months worth of living expenses stashed in an emergency fund, for example, that can be a good place to start. By this measure, many Americans don’t have enough emergency savings, according to SoFi’s April 2024 Banking survey of 500 U.S. adults.
Amount in emergency savings | People who have saved that amount |
---|---|
Less than $500 | 45% |
$500 to $1,000 | 16% |
$1,000 to $5,000 | 19% |
$5,000 to $10,000 | 9% |
More $10,000 | 10% |
Source: SoFi’s April 2024 Banking Survey of 500 U.S. adults
Without a solid contingency fund, any financial set-back -– such as a job layoff, large medical bill, or costly home or car repair — can throw you off balance and cause you to rely on high interest credit cards.
Many people will also want to save for retirement. At the very least, savers may want to take advantage of company matches offered in their workplace retirement plan by contributing the maximum amount the company matches.
After emergency savings and retirement, goals may start to look different from person to person. One person may want to save up for a down payment on a home, another may want to save up to start a business, and yet another may be interested in college savings. Fifty-two percent of the respondents to SoFi’s survey said they are using their savings accounts to save for a specific goal.
Goals People Save For in a Savings Account |
|
---|---|
Short-term and long-term goals | 40% |
Short-term goals like a vacation or holiday spending | 35% |
Long-term goals like a child’s college education or a house | 26% |
Source: SoFi’s April 2024 Banking Survey of 500 U.S. adults
How Much to Save Each Month
A rule of thumb that is sometimes used in personal financial planning is a spending/saving breakdown of 50/30/20. Using this guideline, you would spend 50% of your take-home income on essentials (including minimum payments towards debts), 30% on nonessential (or “fun”) spending, and 20% on savings goals, including debt payments beyond the minimum.
To use the 50/30/20 method to determine how much you should save, you can simply calculate 20% of your monthly after-tax pay. For example, if you earn $3,000 each month after taxes, $600 would go towards savings or other short term financial goals.
You may want to keep in mind that your 20% savings goal can include the money you’re saving for retirement. You can determine how much you’re putting toward retirement each month by looking at your pay stub or electronic payment record. If your employer is automatically depositing money into your 401(k), you may be able to put less into savings each month.
While the 50/30/20 can be a helpful guideline, how much you should — and can afford — to save each month will ultimately depend on your individual circumstances, such as your current income, monthly expenses, and future goals.
If the cost of living is high in your area, for example, you may not be able to swing 20% savings each month.
On the other hand, if you make a significant amount more than you need to live on each month, you may want to put away more than 20%, especially if you’re working towards a large short-term savings goal, such as buying a home in the next couple of years.
Recommended: Cost of Living by State Comparison
Where Should You Put Your Savings?
The best account for building savings will depend on what you are saving for.
If you are saving up for retirement, for example, you’ll likely want to use a designated retirement account, like a 401(k) or IRA, since they allow you to contribute pre-tax dollars (which can help lower your annual tax bill).
You may want to keep in mind, however, that there are annual contribution limits to retirement funds.
For an emergency fund or other short-term savings goals (within three to five years), you may want to open a separate savings account, such as a high-yield savings account, money market account, or a checking and savings account. These savings vehicles typically offer more interest than a traditional savings account, yet allow you to easily access your money when you need it.
Easy Ways to Boost Savings
Below are some strategies that can help make it easier to start — and build — your monthly savings.
Automating Savings
One great way to make sure you stick to a money-saving plan is to automate the process. You may want to set up a recurring transfer from your checking into your savings account on the same day each month, perhaps the day after your paycheck clears. Even setting aside just a small amount of money each month now can, little by little, add up to a significant sum in the future.
Putting Spare Change to Work
There are apps that will automatically round-up any amount paid on a credit or debit card and then put that little bit of extra money into savings accounts or even invest it. This “pocket change” can add up over time.
Using Windfalls Wisely
If a lump sum of cash, such as a bonus or monetary gift, comes your way, you may want to consider funneling all or part of it right into savings.
Or, if you get a percentage raise on your salary, you might want to boost your automatic monthly transfer from your checking account to your savings account by the same percentage.
Reviewing Your Budget
If you feel like your budget is too tight to save anything at the end of the month, you may want to review your monthly and habitual expenses. You can do this by combing through your checking and credit card statements and receipts for the past few months. Or, you may want to actually track your spending for a month or two.
You can then come up with a list of spending categories and determine how much you are spending on average for each.
There are online tools that can help make this process easier — in fact, 23% of people use budgeting tools offered by their bank, SoFi’s survey found. And of the 20% of respondents who have used AI to help manage their finances, 31% have used automated budgeting suggestions.
Once you can see exactly where your money is going each month, you may find places where you can fairly easily cut back, such as getting rid of streaming subscriptions you rarely watch, quitting the gym and working out at home, or cooking more and getting take-out less often.
The Takeaway
The right amount to save each month will be unique to you and includes factors such as your financial goals, how much you earn, and how much you spend each month on essential expenses.
One of the most important keys to saving is consistency. No matter how much of your income you choose to set aside each month, depositing small amounts regularly can build to a large sum over time to achieve your goals.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.
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SoFi members with direct deposit activity can earn 4.30% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.
As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.30% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
SOBK0623012
Source: sofi.com
Apache is functioning normally
The holiday season is nearly here and with it, ample opportunity to spend big. According to a new NerdWallet analysis, Americans plan to spend about $17 billion more on gifts and about $46 billion more on flights and hotels this holiday season than they did last year.
A survey of more than 2,000 U.S. adults, commissioned by NerdWallet and conducted online by The Harris Poll, asked Americans about their holiday shopping and travel plans. We also asked them about actions they’re taking to save money this holiday season.
According to the survey, more than 4 in 5 Americans (83%) plan to purchase gifts for friends and loved ones this holiday season — we’ll refer to them as “holiday shoppers” throughout this report — spending $925, on average. That’s more than 217 million Americans spending over $201 billion. This is quite a bit higher than the 2023 Holiday Shopping Report, where we calculated total gift spending of more than $184 billion.
Travel spending is up as well. The survey found nearly half of Americans (49%) plan to spend money on flights and hotel stays during the 2024 holiday season — we’ll refer to them as “holiday travelers” throughout this report — spending $2,330, on average, for these expenses. That’s more than 128 million Americans spending nearly $300 billion on these travel costs, compared to $254 billion on the 2023 Holiday Travel Report.
Table of contents
Key findings
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Some shoppers, travelers are still in debt from last year: The survey found that nearly 3 in 10 Americans who used credit cards to pay for holiday gifts last year (28%) still haven’t paid off their balances. Likewise, the same proportion (28%) of 2023 holiday travelers who put flights and hotel stays on a credit card still haven’t paid off the balances.
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Holiday giving may cause shoppers stress, possibly in the name of showing they care: More than half of 2024 holiday shoppers (55%) say the costs associated with holiday spending stress them out. But 32% of shoppers think it’s important to purchase holiday gifts and experiences, despite the costs, to show others love.
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Gift giving could harm financial stability: Of 2024 holiday shoppers, 10% say they’ll likely need to use some of their emergency savings to buy holiday gifts this year and 9% say they’ll prioritize gift buying over paying some of their regular bills — like debt payments or utilities — this holiday season.
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Some travelers prize plans despite costs: More than 2 in 5 holiday travelers (42%) say they’ll keep their usual holiday travel plans this year, regardless of expense.
“While celebrating the season is a top priority for many Americans, going overboard can cause stress for months afterward, so it’s worth planning ahead to reduce costs where possible,” says Kimberly Palmer, personal finance expert at NerdWallet. “Taking time to compare prices, using savings instead of debt to finance purchases and being flexible with travel plans are among the ways people can take control of their holiday spending,” she adds.
Last year’s debt
Some holiday shoppers may be going into the gift-buying season with lingering debt from last year. Of Americans who put 2023 holiday gift purchases on a credit card, less than a third (31%) paid it off with the first statement. This means that up to 69% of Americans who used credit cards to buy gifts last year may have paid interest on these purchases. Some are still likely paying interest — 28% of 2023 holiday shoppers who used a credit card still haven’t paid off their balances.
Savvy shopping strategy: Pay off last year’s debt and make a budget for this year
If you still have debt from last year’s holiday season, make a plan to pay it off as soon as possible. And think about how much you can reasonably spend on 2024 holiday shopping without carrying a credit card balance into the new year.
According to the survey, 27% of 2024 holiday shoppers have a strict budget for the amount they will spend on gifts this year. Creating a budget before the sales start is a smart move to keep your spending in check.
“Setting aside savings for holiday expenses as early as possible in the year can make it easier to build up more of a cushion before these seasonal expenses hit,” Palmer says. “Estimating the total amount you plan to spend and then sticking to it as you shop and plan travel can also help avoid surprises later.”
Payment methods
Most shoppers plan to use credit cards again for this year’s holiday shopping: Nearly three-quarters of 2024 holiday shoppers (74%) say they’ll put at least some of their holiday gift purchases on a credit card. On average, they plan to charge $723 for these gift purchases.
Other popular payment methods for gift buying include cash (65%) and using money from savings (28%).
Credit cards, when not paid in full by the due date, can be a pricey way to finance gift purchases. But those shopping with payday loans (7%) may be hit with even higher costs in the form of fees that equate to triple-digit interest rates.
Savvy shopping strategy: Avoid letting holiday shopping hurt your finances
Holiday gift giving may be a fun annual tradition, but it’s not worth putting your financial health at risk. According to the survey, 10% of 2024 holiday shoppers will likely need to use some of their emergency savings to buy holiday gifts this year and 9% will prioritize gift buying over paying some of their regular bills this holiday season. Consider decreasing your shopping budget if you’d otherwise have to take on expensive debt, spend down your nest egg or forgo bill payments to pay for gifts. These actions could be costly, which may taint the joy of the season.
Holiday shopping plans
Many 2024 holiday shoppers plan to shop the sales, with 39% saying they plan to shop on Black Friday and 36% planning to shop on Cyber Monday this year. And around 1 in 7 (15%) have completed or will complete the majority of their holiday gift shopping during the mid-summer and fall sales.
Some will shop locally: Of 2024 holiday shoppers, 16% plan to shop on Small Business Saturday and the same proportion (16%) say they’ll prioritize shopping at locally-owned or small businesses this year.
Cutting back on gifting is on the agenda for some shoppers: Of 2024 holiday shoppers, 28% say they’ll spend less per person on gifts this year and 27% say they’ll purchase gifts for fewer people this year compared with years past.
Finally, some shoppers likely don’t even have gift buying on their radar yet: 14% of 2024 holiday shoppers say they traditionally shop for gifts at the last minute, or within days of a gift exchange.
Savvy shopping strategy: Look for ways to save
In addition to shopping the big sales — such as Black Friday or Cyber Monday — there are other ways to save on gift buying this upcoming holiday season. According to the survey, 32% of 2024 holiday shoppers plan their purchases in advance so they can monitor them continuously for sales before purchasing, and 23% use coupon or cashback sites or apps when making holiday gift purchases. Other 2024 shoppers may be avoiding buying all new gifts by regifting (11%) and purchasing some gifts secondhand this year (12%).
“Smart shopping is all about planning ahead so you have time to compare prices and wait for the right discount to make your purchase. It’s easier to overspend when you feel rushed, so making your shopping list early is a good strategy,” Palmer says.
Holiday shopping feelings
Nearly three-quarters of 2024 holiday shoppers (73%) say the holiday season is their favorite time of year, which may be leading some to overextend themselves. More than half of 2024 holiday shoppers (55%) say the costs associated with holiday spending stress them out and 40% say they feel pressure to spend more money on holiday gifts than they’re comfortable spending. Still, 32% of 2024 holiday shoppers think it’s important to purchase holiday gifts and experiences, despite the costs, to show others love.
Savvy shopping strategy: Set boundaries with loved ones
According to the survey, 22% of 2024 holiday shoppers have discussed or plan to discuss limiting holiday gift spending this year with their friends and family members. Stretching your finances due to a sense of obligation or tradition could be a cue to reevaluate your shopping plans.
“If you don’t have enough savings to buy gifts for everyone on your list this year, it might be a good time to talk about scaling back or opting for a more limited gift exchange. Giving a homemade gift or a coupon for an activity together are also popular options that don’t strain the budget,” Palmer says.
You might be pleasantly surprised at your friends’ and family members’ willingness to scale back. Around a third of Americans (33%) say they’d rather have an experience with their loved ones instead of exchanging gifts during the holiday season and 23% would prefer to receive fewer gifts this upcoming holiday season than they typically get. Gift giving can be expensive and stressful, and if you’re feeling that way, it’s possible your loved ones can relate.
Holiday travel
Last year’s debt and this year’s credit card usage
Similar to holiday shoppers, 28% of 2023 holiday travelers who put flights or hotel stays on a credit card still haven’t paid off these balances. Less than a third of those who used credit cards for 2023 holiday travel (31%) paid it off with the first statement.
As for this year, nearly three-quarters of 2024 holiday travelers (72%) plan to put some or all of their holiday flight and hotel expenses on a credit card. And 15% of holiday travelers say they applied for a new credit card to get a signup bonus to help pay for 2024 holiday travel expenses.
Thrifty travel tips: Pay off last year’s debt & take steps to save on this year’s travel
According to the survey, more than a quarter of 2024 holiday travelers (28%) are reducing their everyday spending in order to save money to pay for holiday travel expenses this year and 24% plan to spend less on holiday gifts this year in order to save money for 2024 holiday travel expenses. These are also good strategies to free up cash to put toward any lingering debt from last year’s holiday travel.
Getting a new travel card for a signup bonus can be a smart idea to help reduce the cost of holiday travel, provided you pay off the balance each month. Otherwise, interest payments will eventually outweigh any rewards you earn.
“As with gifts, planning ahead can make it easier to leverage credit card rewards because you generally need several months to accrue the rewards before you use them. Staying flexible on your exact dates and destination can also help you find lower cost options,” Palmer says.
Holiday travel plans
Travel can get pricey, especially at peak times like the holiday season. Still, 42% of 2024 holiday travelers say they’ll keep their usual holiday travel plans this year, regardless of expense. For some, it’s a holiday priority: 28% of 2024 holiday travelers say that traveling over the holiday season is more important to them than the giving and receiving of gifts.
Thrifty travel tip: Start saving for next year’s holiday travel
It’s fine to prioritize holiday travel, as long as you can afford it. Once this holiday season ends, start making plans for next year. This could mean setting aside money every month throughout the year, saving an upcoming windfall or strategically accruing credit card rewards to bring down the cost of holiday travel in 2025.
“If you end the holiday season with more debt and financial stress than you would have liked, consider making a plan for next year now. It’s never too early to start building up a holiday fund, and doing so can help you look forward to the season all year long,” Palmer says.
Methodology
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Sept. 10-12, 2024, among 2,079 U.S. adults ages 18 and older, among whom 1,735 plan to purchase gifts this holiday season and 914 plan to spend money on flights/hotels during the 2024 holiday season. The sampling precision of Harris online polls is measured by using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.5 percentage points using a 95% confidence level. This credible interval will be wider among subsets of the surveyed population of interest. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact [email protected].
We used U.S. Census population estimates and survey responses to calculate the total number of Americans who plan to buy gifts this holiday season and total gift spending, as well as the total number of Americans who plan to pay for flights or hotel stays this holiday season and total travel spending.
Disclaimer
NerdWallet disclaims, expressly and impliedly, all warranties of any kind, including those of merchantability and fitness for a particular purpose or whether the article’s information is accurate, reliable or free of errors. Use or reliance on this information is at your own risk, and its completeness and accuracy are not guaranteed. The contents in this article should not be relied upon or associated with the future performance of NerdWallet or any of its affiliates or subsidiaries. Statements that are not historical facts are forward-looking statements that involve risks and uncertainties as indicated by words such as “believes,” “expects,” “estimates,” “may,” “will,” “should” or “anticipates” or similar expressions. These forward-looking statements may materially differ from NerdWallet’s presentation of information to analysts and its actual operational and financial results.
Source: nerdwallet.com
Apache is functioning normally
In the United States, full retirement age actually varies depending on the year you were born. But if you were born in 1960 or later, your full retirement age is 67. Full retirement age (FRA) is the age at which you become eligible to receive your full retirement, or Social Security benefits. FRA is a key milestone in life and a crucial component of the U.S. Social Security system.
It impacts how much you’ll receive monthly, when you can claim Social Security in full, and how much your delayed retirement credits will increase over time. Your Social Security benefits will, likely, also have an effect on the decisions you make around your strategies for saving and investing for retirement, too.
Key Points
• Full retirement age varies depending on birth year. It ranges from 66 for those born from 1943 to 1954 to 67 for those born in 1960 or later.
• You can claim your Social Security benefits before FRA (as early as age 62), but your benefit will be permanently reduced by up to 30%.
• You can delay your retirement to increase your monthly benefit by 8% for each year of delay (up until age 70).
• You can still work after you’ve started collecting Social Security retirement benefits. But if you’re younger than FRA and earn above certain limits, your benefits may be reduced. There’s no earnings limit once you reach FRA.
What is Full Retirement Age?
Full retirement age (FRA) is the age at which you become eligible to receive 100% of your monthly primary insurance amount (PIA), which is the starting point for calculating your Social Security retirement benefit.
The PIA is the base monthly payment you should receive once you retire. It’s based on your past earnings and adjusted for inflation. In general, here’s how it works:
• If you retire once you’ve reached your exact FRA, you’ll receive 100% of your PIA.
• Retiring earlier will reduce your monthly Social Security retirement benefit to a smaller percentage of your PIA (but no less than 70% of it — more on this later).
• Conversely, if you delay retirement beyond your FRA, your Social Security retirement benefit will be a higher percentage of your PIA.
The bottom line is that because your Social Security retirement benefit is permanently set based on when you retire relative to your FRA, knowing your FRA is extremely important. Even if you’ve done some planning and opened an online IRA or other retirement account.
And, as noted, having an idea of what you can or should expect from your Social Security benefits can have a profound impact on your strategies as they relate to investing for retirement. Since many people may hope to supplement their Social Security income with their own savings and investment income, it can change the calculus in terms of when you’re able to retire.
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Determine Your Full Retirement Age
As mentioned, FRA varies depending on your birth year. If you were born in 1960 or later, your FRA is 67. For those born before 1960, FRA decreases by two months for each year earlier, down to 66 for those born between 1943 and 1954.
Here’s a table to clarify the math:
Social Security Retirement Age Chart |
|||||
---|---|---|---|---|---|
Year of Birth | Full Retirement Age | Months between 62 and FRA | Maximum PIA reduction if you retire at 62 | Months between 70 and FRA | Maximum PIA increase if you retire at 70 |
1943 to 1954 | 66 | 48 | -25% | 48 | +32% |
1955 | 66 and 2 months | 50 | -25.83% | 46 | +30.67% |
1956 | 66 and 4 months | 52 | -25.67% | 44 | +29.33% |
1957 | 66 and 6 months | 54 | -27.5% | 42 | +28% |
1958 | 66 and 8 months | 56 | -28.33% | 40 | +26.67% |
1959 | 66 and 10 months | 58 | -29.17% | 38 | +25.33% |
1960 and later | 67 | 60 | -30% | 36 | +24% |
Source: Social Security Administration |
Why Full Retirement Age Matters
FRA is a key factor in deciding when to start collecting Social Security benefits. Claim them too early, and your monthly check will be permanently reduced. Wait too long, and you won’t get any additional benefits. So, if you’re trying to figure out how to retire early, this could become a key piece of information in your calculations.
As mentioned, you’ll receive 100% of your PIA if you retire exactly at your FRA. You can apply for Social Security and start collecting earlier, but no earlier than age 62. And your benefits will be reduced for each month you begin early. How much? Here’s a recap:
• 5/9 of 1% for each month up to 36 months before your FRA
• 5/12 of 1% for each month over 36 months before your FRA
For example, if your FRA is 67, and you retire at 65 (i.e., 24 months earlier), your benefits will be reduced by:
24 months x 5/9 x 1% = 13.33%
That means your monthly benefit will be (100 – 13.33)% = 86.67% of your PIA.
If that sounds too complicated, you can check the retirement age calculator on the Social Security Administration (SSA) website.
But that’s not all. If you retire earlier than 65, the age of eligibility for Medicare, you may need to pay for your own healthcare coverage until you turn 65. If your previous job included medical benefits and you retire before becoming eligible for Medicare, you may have to pay a monthly premium to maintain coverage during this interim period. This could increase your expected expenses in retirement.
Regardless, it may be a good idea to enroll in Medicare when you turn 65 or risk paying a late enrollment penalty when you do sign up. Make sure to factor this into your calculations.
If you retire later instead, delaying your retirement beyond your FRA will earn you more money in the form of delayed retirement credits (DRCs), which increase your monthly benefit. If you were born in 1943 or later, you’ll earn a 2/3 of 1% (roughly 0.67%) increase for each month after FRA, equating to an 8% increase per year. You can keep earning these benefits only up until age 70, so there’s no financial reason to wait beyond this age.
For example, if your FRA is 66 and you wait until 68 to retire, you will earn an increase of:
24 months x 2/3 x 1% = 16%
That means your monthly benefit will be (100 + 16)% = 116% of your PIA.
When to Start Collecting Social Security
Given that the average retirement age in the U.S. is 65 for men and 62 for women, many Americans do choose to retire before reaching full retirement age. But there’s no one-size-fits-all answer for when it’s the right time to choose to retire and start collecting Social Security benefits. It depends on several factors.
First, you should honestly assess your health situation.
• Is your life expectancy short or long?
• Are you in good enough health to keep working and earning?
• Do you have persistent health issues that require the best possible health insurance coverage?
• Do you have the means to pay for private insurance if you retire before you’re eligible for Medicare?
Your answers to these types of questions will steer you in the direction.
Additionally, if you’re the higher-earning spouse, your surviving partner might continue receiving your benefits for many years after your passing. In that case, it could make sense to wait to maximize their future benefits — especially if they’re younger than you.
Other considerations like immediate income needs, if you have money in a Roth IRA, the potential for reduced expenses in retirement, or foreseeable job instability (such as concerns about your employer’s financial health) might mean early retirement is the right call.
Further, it may be worthwhile to investigate how a traditional IRA or other type of retirement plan could affect your plans as well.
Early Versus Late Retirement
Here’s a quick recap of the pros and cons of waiting to claim benefits until after FRA versus before FRA:
Claiming Benefits Before FRA |
|
---|---|
Pros | Cons |
Access to income sooner | Permanently reduced monthly benefits |
Better if your life expectancy is shorter or you suffer from health issues | Reduced spousal and survivor benefits |
Useful if your job stability is uncertain | Might need to pay for private health insurance until Medicare eligibility at 65 |
Claiming Benefits After FRA |
|
Pros | Cons |
Permanently increased monthly benefits | Access to income is delayed |
Higher survivor benefits for your spouse | Risky if you have health issues |
Potential for higher lifetime income | Can impact your lifestyle or quality of life |
Working After Reaching Full Retirement Age
You can keep working and collecting a paycheck after reaching full retirement age. If you keep working after hitting your FRA, your Social Security benefits won’t take a hit. However, if you claim benefits earlier, the government might temporarily withhold some of the benefits until you reach your FRA.
In particular, you might face one of three scenarios:
1. If you’re under FRA for the entire year, you can earn up to $22,320 (in 2024) without any benefit reduction.
2. If you earn more than $22,320, the SSA will deduct $1 from your benefits for every $2 you earn above this limit.
3. In the year you reach FRA, the earnings limit increases to $59,520 (for 2024). The SSA will deduct $1 from your benefits for every $3 you earn above this limit. Only earnings up to the month before you reach FRA count toward this limit.
This provision is known as the retirement earnings test (RET) and is periodically adjusted to account for inflation.
Once you reach FRA, the SSA will recalculate your benefits to account for the months when benefits were withheld due to excess earnings. So, while you don’t get a lump sum back, you do get higher payments for the rest of your life.
The Takeaway
Choosing the right time to apply for Social Security has a tremendous impact on your retirement strategy. Understanding what your full retirement age is factors heavily into this decision since it essentially defines the timing of your retirement. Whether you claim benefits early, at your FRA, or later will affect the amount of your checks. That will also come into play when seeing how far your savings and investments will take you, when paired with your Social Security benefits.
As you plan for your retirement, consider a savings strategy that can potentially offer you compound growth. SoFi Traditional IRAs or Roth IRAs allow you to invest your way. With investment options like stocks, ETFs, and more, you can invest your way. Save, invest, and watch your money grow as you work toward a secure and comfortable retirement.
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FAQ
How does age affect my Social Security benefits?
Your Social Security benefits will be reduced by a percentage if you claim them before your full retirement age (FRA) and increased if you delay claiming them. The earlier you claim before FRA, the greater the reduction, the longer you wait, the higher the increase (up until age 70).
Can I choose to receive Social Security benefits earlier than full retirement age?
Yes, you can start receiving benefits as early as age 62, but the earlier you claim them, the more they will be reduced. Note that this reduction is permanent.
What is the significance of the full retirement age increase?
The increase in FRA means you must work longer to claim 100% of your benefits. For example, people born in 1954 could earn full benefits at age 66, while those born in 1960 or later must wait until age 67 for unreduced benefits.
Photo credit: iStock/JLco – Julia Amaral
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