18 Student Loan Mistakes to Avoid

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Most students have to borrow student loans to go to college. But very few know anything about them. That’s pretty scary considering you’re likely to take on several tens of thousands of dollars in debt. And making mistakes with that much money could cost you just as much. 

Take it from me. I borrowed six figures to get a doctorate to work in a notoriously low-paying field. And thanks to taking advantage of years of deferments, forbearances, and an income-based plan designed to help borrowers with high debt and low income, I now owe twice what I originally borrowed. 

Don’t make my mistakes. Instead, learn about the most common student loan borrowing and repayment errors. That way, you can avoid an overwhelming amount of student loans and get out of debt faster.

Student Loan Mistakes to Avoid

Most student loan borrowing and repayment mistakes deal with misunderstanding what you’re borrowing, how interest works, how to pay off debt quickly, and how to avoid default. Steer clear of these top mistakes to ensure you borrow smartly and don’t end up in over your head. 

Mistake 1: Applying for Aid at the Last Minute

The Free Application for Federal Student Aid (FAFSA) is the gateway to qualifying for all financial aid of any kind. That includes federal grants and student loans as well as state grants and most institutional aid — the grants, scholarships, or loans offered by your school. 

The FAFSA opens for applications every Oct. 1, and you must complete it by June 30 before the academic year you need aid for. You must complete a new FAFSA every year you plan to enroll in school.

Many colleges and universities also require additional forms, such as the CSS profile (short for the College Scholarship Service profile), which dives even deeper into your family’s financial situation. So check with the financial aid office to find out what they are, and stay on top of deadlines. 

But note that states and colleges have limited grant resources. And those resources tend to go to the students who apply early. In other words, they’re first come, first served. So the earlier you get your applications in, the better.

And while the federal government is unlikely to run out of education loan funds, if you miss the FAFSA deadline, you’ll have to resort to private loans, which are costlier and feature less favorable repayment options.

Apply as early as possible to ensure you get as much grant and scholarship aid as you can qualify for. The more grants you can get, the fewer loans you’ll need to borrow.

Mistake 2: Borrowing Too Much

It’s possible to borrow every cent you need to finance your education anywhere you want to go to school. But it’s crucial to ask whether you should. Getting in over your head with student loan debt can have catastrophic consequences. I’m living proof.

I needed a doctorate for my original career plan of teaching college. But few college professors earn enough income to manage the types of monthly payments I had along with other living expenses. That’s how I ended up in the deferment-forbearance cycle.

And it’s not easy to get out of. 

Thanks to a loophole in the Public Service Loan Forgiveness Program I was counting on and how colleges operate, my teaching position doesn’t qualify me for forgiveness. Additionally, discharging student loans in bankruptcy is currently so difficult it’s nearly impossible. And settling federal student loans isn’t any easier. 

The first step to reducing overwhelming student loan debt is to exhaust every other means of paying for college, including scholarships, grants, and work-study. Search online for scholarship aid using a national scholarship database like Fastweb.

And never count on options like the Public Service Loan Forgiveness Program. Historically, the government’s made it nearly impossible to get. Do your homework to increase your chances of getting it and apply for it if you qualify. But don’t base your student loan repayment strategy on it.

Additionally, consider less expensive colleges. State schools tend to give most students the best value. It only matters where you go to college for a select few graduates, such as those looking to build connections with specific financial or law firms. 

Finally, do a cost-benefit analysis. I found out the hard way all degrees don’t pay off, so as much as you want to pursue your passion, it might not be worth it financially.

Search sites like Glassdoor or PayScale to find out how much you can reasonably expect to make in your chosen field and compare that to the cost of school. As a rule, don’t borrow more than you can expect to earn as your annual salary your first year out of school. That ensures you can pay it off in 10 years or less. 

Mistake 3: Not Understanding How Loan Forgiveness Works

Historically, the Public Service Loan Forgiveness Program has been notoriously difficult to qualify for. The program was overhauled in the fall of 2021. But until then, only 2% of applicants who believed they qualified had their loans forgiven.

Much of that is likely due to bureaucratic mismanagement, hence the overhaul. However, the mismanagement led tens of thousands of borrowers into making payments under the wrong repayment programs. 

On Oct. 6, 2021, the government announced Temporary Expanded Public Service Loan Forgiveness, which allows previously nonqualifying payments to be counted toward loan forgiveness as long as those payments are certified before Oct. 31, 2022.

But moving forward, it’s crucial that borrowers are clear about the rules of loan forgiveness. You don’t want to find out after 10 years that your application is ineligible and you have to start all over.

To qualify for loan forgiveness, you must:

  • Have Federal Direct Loans. Private loans don’t qualify for forgiveness, nor do other types of federal loans, such as Perkins loans. If your federal loans aren’t direct loans, you can consolidate them into a direct loan to qualify. 
  • Work Full-Time for the Government or a Nonprofit. Payments only qualify while you’re employed full-time for an American federal, state, local, or tribal government or qualifying 501(c)(3) nonprofit organizations. That includes military service, Peace Corps, and AmeriCorps but excludes labor unions and partisan political organizations.
  • Enroll in an Income-Driven Repayment Program. No other repayment options qualify. But even if your income is so low your calculated payment under the plan is $0, being enrolled qualifies you. 
  • Make 120 Qualifying Payments. They don’t have to be consecutive, but they must qualify, meaning you have to make them under an income-based plan.
  • Submit the Forgiveness Certification Form Regularly. You must fill out and submit a Public Service Loan Forgiveness Program certification form yearly and each time you switch employers. While not required, doing so ensures the payments you’re making qualify for forgiveness and allows you to make any changes you need to before you’ve made too many nonqualifying payments.

See all the rules at StudentAid.gov. 

Mistake 4: Taking Out the Wrong Type of Loan

There’s more than one type of student loan. But it’s generally best to exhaust your resources for federal aid before turning to alternatives. 

That said, while rare, some students may find the caps on how much you can borrow in federal direct loans don’t cover the total cost of attendance. 

Fortunately, graduate students and parents of undergrads can borrow PLUS loans up to the total cost of attendance. So there’s no need for many students to resort to other sources. If that’s not an option for you, students can sometimes borrow from their state government or the school they plan to attend. 

But the primary source of alternative loans for student borrowers is private student loans from banks or credit unions.

Federal student loans almost always win out over private student loans because of their lower fixed interest rates, flexible repayment options, borrower protections, and the potential for forgiveness.

But if you’re planning to borrow PLUS loans and definitely won’t qualify for the Public Service Loan Forgiveness Program, it’s worth it to find out whether you could get a better deal on a private loan if you have excellent credit. 

Mistake 5: Not Shopping Around for the Best Interest Rate & Terms

If you decide to borrow private student loans, always shop around for the best loan you can qualify for.

Private lenders compete for your business. So going with the first lender you find could mean leaving a better rate on the table.

Use a comparison site like Credible, which matches you with prequalified rates from up to eight lenders with only a soft inquiry on your credit report, which doesn’t affect your credit score. That way, you can compare all your student loan options in one place. 

But it’s not only interest rates that should matter to your bottom line. The best private student loan companies offer various borrower perks in addition to low rates.   

For example, most lenders reduce your interest rate when you enroll in autopay. And some reduce your rate even further with loyalty discounts for doing other business with them, such as opening bank accounts or taking out personal loans. 

Some lenders also offer perks for specific borrowers, such as special payment plans for medical and dental students during their residencies. And some even offer unique perks like free financial coaching or career planning services.  

Just remember to read all the fine print so you know exactly what loan terms you’re agreeing to before you sign. For example, it may lack options for deferment if you fall on hard times or a co-signer release option. Don’t be lured by a shiny interest rate on its own.  

Mistake 6: Not Understanding How Variable & Fixed Interest Rates Work

The rate is only one piece of the interest puzzle. How that rate works also affects how much accrues over time. 

For example, all federal student loans come with fixed interest rates set each year by law. That means the rate stays the same for the life of the loan, which could be a good or bad thing, depending on the interest rate during the year you borrowed. 

But some private student loans have variable interest rates. These fluctuate with market conditions. Although the variable rates are generally the lowest offered rates, it’s because the borrower is assuming the risk that the rate won’t go up, which is likely if you take 10 or more years to repay your student loans.

If you already have a variable-rate private loan, look into refinancing to a fixed-rate loan while rates are low. 

And once you start making payments, contact the student loan company to find out if there are any ways to lower the interest rate, like signing up for an autopay discount.

Mistake 7: Not Understanding Interest Accrual & Capitalization

Another factor to consider is when the interest begins to accrue (accumulate). On subsidized federal loans, that doesn’t happen until after you graduate, leave school, or drop below half-time enrollment. Thus, whatever you borrowed is what you owe up until the day you’re no longer enrolled full time. 

But interest on unsubsidized federal and private loans starts the moment you get the money. So on graduation day, you owe a higher balance than you originally borrowed.

Worse, that interest is capitalized (added to the principal balance as though it were part of what you borrowed) once you graduate, leave school, or drop below half-time enrollment. Since interest accrues according to the principal, that means you’ll then be earning interest on the interest.

Fortunately, you can reduce or even eliminate the burden interest can cause. Make small monthly interest payments while you’re still in school. That ensures none accrues and capitalizes on graduation. 

If you have to, take on a part-time job. As long as you keep it to part-time hours, it shouldn’t interfere with your studies, and a well-chosen college job comes with numerous benefits, like teaching you the money management skills you need to pay off those loans after college. 

Mistake 8: Co-Signing a Loan Without Understanding the Consequences

In some cases, a co-signer can help a student qualify for a loan or get a lower interest rate. 

But co-signing their loan comes with a great deal of risk. You’re taking on equal responsibility for the loan. That means if they make a late payment or miss one entirely, it could impact your credit score. And if they default on the loan, the loan company will come after you for the balance.

And it doesn’t matter how responsible or well-intentioned the borrower is. No one can predict the future, and they could fall on hard times. 

There are several programs designed to help people who have trouble paying back federal loans — if they enroll in them. But private lenders are especially hard to work with. Either way, there are risks associated with co-signing for a student loan. 

If you do agree to co-sign, ask them to look for a company with a co-signer release option, which absolves you of responsibility for the debt after the student makes a certain number of on-time monthly payments.

If not getting help means they can’t attend college, a parent PLUS loan gives you more control than co-signing a private loan. You can borrow up to the total cost of their attendance, but the loan will be in your name. 

If you want, you can still agree that they’re responsible for paying you back (though that agreement isn’t legally enforceable). Plus, if you experience financial hardship, you have access to federal repayment plans and borrower protections.

However, don’t sacrifice retirement savings or go into debt paying for your kids’ college. It could leave you unprepared, potentially placing a financial burden on them later.

Mistake 9: Putting Off Making a Repayment Plan

Many borrowers get lulled into thinking they can wait until after they graduate and their six-month grace period ends before they have to start worrying about their student loans. But you need to prepare your budget long before then.

A student loan payment could easily be $400 per month (maybe more). That’s a hefty chunk of anyone’s take-home pay. But recent grads won’t make as much as established professionals in any field. 

And if you don’t think about it for the first six months post-graduation, it’s easy to establish a post-college life that doesn’t leave room for it, such as upgrading your apartment or buying a new car.

Before you graduate, find out what your monthly payment will be. You can check your student loan balance by creating a student account at StudentAid.gov.

Then, build the rest of your post-college budget around your monthly student loan payment. That ensures you won’t take on more financial obligations than you can afford. Unfortunately, that may mean living that ramen-eating college lifestyle for the first couple of years after you graduate. 

Mistake 10: Choosing the Wrong Repayment Plan

The automatic student loan repayment schedule is 10 years of fixed payments, but it’s not the best option for all borrowers.

You don’t want to string out payments for decades unless it’s necessary. But income-driven repayment plans, which forgive any remaining balance after you make 240 to 300 (20 to 25 years) of qualifying payments, may be a saving grace for borrowers with high debt and low income. 

And for those entering public service fields, an income-driven repayment plan is the gateway to the Public Service Loan Forgiveness Program, which forgives any remaining balance in as few as 120 qualifying payments. 

But even if you stick to the standard 10-year plan, you still have options. 

For example, you can repay your loans on a graduated plan, which lets you make smaller payments at the beginning. Your payments then gradually rise every two years. This plan is ideal for those who must start in a lower-paying job but expect their income to increase substantially as they gain work experience.

Use the loan simulator at StudentAid.gov to see how much you can expect to repay under different repayment plans. It shows your monthly payments, total amount owed, and any potential balance you could have forgiven under an income-driven repayment plan as well as the date you can expect to have your loans paid off.

Use this information to weigh your options. Ask yourself: 

  • Is it better to pay off your loans as quickly as possible by sticking to the standard 10-year plan? Is that realistic at your current income? 
  • How big will your payments be 10 years down the line if you opt for graduated repayment? Are you likely to make enough money for that to be practical? 
  • Is it better to make your current situation more manageable through an income-driven or extended repayment plan? 

Lowering your monthly payment will have consequences since it means more interest will accrue. But the loan simulator can give you an accurate picture of what those consequences will look like. 

Mistake 11: Only Making the Minimum Payment

The longer you sit on debt, the more it costs you thanks to the interest. So if you have any wiggle room in your budget, put whatever money you can toward your student loans to pay them off as quickly as possible. 

Even small amounts can make a big difference.

For example, if you borrowed $40,000 in student loans at 6% interest, your monthly payment would be $444. But if you paid $500 a month instead — a difference of only $56 — you’d save $1,957 in interest and have them repaid a year sooner.

If you can, opt for a side gig or cut your expenses. Additionally, put any windfalls — like tax refunds, gifts, or inheritances — toward your loans.  

But this is key: When you make any extra payments toward your loans, ensure you indicate the company should apply it to the principal. The more you pay down the principal, the less interest accumulates.

Mistake 12: Refinancing Without Considering the Pros & Cons

Refinancing is a common strategy for lowering the cost of debt, whether it’s a mortgage refinance or a student loan. But while refinancing can score you a lower interest rate, interest rates aren’t the only consideration.

When you refinance a student loan, you can only do so through a private refinance lender. That means you lose access to all the benefits of federal student loans, including federal repayment plans, borrower protections, generous deferment and forbearance options, and federal loan forgiveness. 

It may still be worth it to you, depending on the rate you can get. But it’s crucial to weigh that against all you’d be giving up.

Even if the private interest rate is lower, the future is unpredictable, and you never know if you could need those federal benefits. And you’ll lose all access to federal loan forgiveness with a refinance.

On the other hand, if you have private student loans, there’s no reason not to refinance. 

Mistake 13: Postponing Payments Unnecessarily

Both federal and private student loans have multiple options for deferment and forbearance. These allow you to temporarily suspend payments for various reasons, including full-time enrollment in school, economic hardship, military deployment, and serving in AmeriCorps. 

Sometimes, deferment or forbearance makes sense, such as while you’re enrolled in school. But prolonged use of these options just increases your overall balance because interest keeps piling up. 

Interest accrues on all but subsidized federal loans during deferments. And it accrues on all loans during forbearance. Additionally, that interest is capitalized (added to the principal balance) at the end of the deferment or forbearance. 

Only use these options when absolutely necessary. And if possible, make interest payments during periods of deferment or forbearance to prevent its accrual. 

If you’re deferring or forbearing for economic hardship and anticipate the hardship will last longer than a month or two, apply for an income-driven plan instead. 

Depending on the severity of your situation, your monthly payments could be calculated as low as $0. And some plans don’t capitalize interest and even have interest subsidies, which means the government covers the interest on your loans for a specified period.  

Additionally, those $0 “payments” count toward potential student loan forgiveness. But only periods of economic hardship deferment count toward the forgiveness clock. No other form of deferment or forbearance qualifies. And there’s a cap on how long you can defer for economic hardship.

Plus, if your financial situation changes, you can always change your repayment plan. 

Mistake 14: Missing Payments

Missing payments can result in late fees. The student loan company tacks these onto your next month’s minimum payment. So if you had a hard time paying this month, it won’t be easier next month. 

Plus, when you make your next payment, your money covers fees and interest before going toward the principal. So multiple fees could mean paying your principal down slower. And interest accrues according to the principal balance, so the higher you keep that balance, the more interest you pay.

Worse, if you miss enough payments, it can result in a default of your loans, which comes with severe consequences, such as damaged credit or wage garnishment or seizure of your tax refunds, Social Security benefits, or property. 

There’s never a reason to miss a payment on a federal student loan if you’re facing financial hardship. Simply call the company and let them know. Depending on what you qualify for, you can choose from multiple options, including deferment, forbearance, or an income-driven repayment plan.

Private lenders are tougher to work with, as fewer repayment options are available. But many are still willing to work with you if you explain the situation. Most of the top lenders have limited programs for deferment or forbearance in times of economic hardship. 

Mistake 15: Keeping Your Assigned Payment Due Date

Student loan companies allow you to adjust your monthly due date. That can be helpful if you’re having trouble stretching your dollars from one paycheck to the next.

Plus, if your bills are anything like mine, most of them are due at the same time of month. Thus, if you get paid biweekly, adjusting your due date to a different time of the month can make things easier.  

If you want a different due date, contact the company handling your student loans and ask if you can adjust your due date to one more beneficial for you. You may even be able to change it through your online account.

Ensure you get confirmation of the new date in writing. That protects you if you get hit with any late fees in error. Additionally, ask when the new date takes effect. It could take a billing cycle or two, depending on the lender. 

Mistake 16: Falling for Student Loan Scams

Many borrowers have reported receiving phone calls, emails, letters, and texts offering them relief from their student loans or warning them federal forgiveness programs will end soon if they don’t act now.

But the services these scam debt relief companies offer usually steal borrowers’ money or private information rather than grant any actual relief. 

Other student loan scams take fees for helping students apply for income-driven repayment plans or consolidate their loans. However, borrowers never have to pay to sign up for any federal repayment programs. They only need to contact the company in charge of their loan.

In general, if someone contacts you, avoid giving them any personal information. No matter who they claim to be, either tell them to send their request in writing or say you’ll call them back. Then verify their story by contacting your student loan company at their listed phone number or through their website.

Additionally, never pay an upfront fee for student loan services. The government doesn’t charge application fees for any of their loan programs. They also won’t claim an offer is only available for a limited time since all the terms are set by law every year and are available to all students.

For more red flags to watch for, check out the Department of Education’s tips on avoiding student loan scams. 

Mistake 17: Forgetting to Update Your Contact Information

You are responsible for making all your loan payments whether you received the bill or not. Additionally, the lender in charge of your loan can change, and you need to ensure you’re able to receive that information so you always know who to contact about paying and managing your loans.

Thus, it’s on borrowers to ensure the company in charge of their student loans has all their current contact information, including mailing address, email address, and phone number. That’s especially the case if you moved after you graduated or listed a parent’s address on your application forms.

Log into your student loan account to ensure your contact information is current. 

If you don’t know who services your student loans, check with your school’s financial aid office. For federal loans, you can always create an account on StudentAid.gov.

Then, each time you move, get a new email address or change your number, update that info with the company handling your student loans.

Mistake 18: Not Asking for Help

Paying off student loans can be overwhelming, especially if you’re dealing with low income or a large amount of debt. Depending on your circumstance, it could feel like you’re drowning and may never escape.

Trust me, I know how it feels. And I’m hardly alone. A simple online search reveals dozens of stories of borrowers who’ve consistently paid on their loans yet owe more than ever thanks to the compounding effects of interest, which often feels like quicksand. 

But paying late or not at all only makes the situation worse. Damage to your credit report can make it difficult for you to rent an apartment, buy a car, or even get a job. And default can leave you subject to wage garnishment, steep collection penalties, and even lawsuits.  

But hope isn’t lost. There is help. Resources exist for borrowers who need an extra hand.

The first step is to reach out to the student loan company. See if there’s a payment plan that’s manageable for you. Even if there isn’t, let them know what payment you can afford, and go from there. 

If the company is uncooperative, contact the federal student loan ombudsman. 

Borrowers can also reach out to nonprofit student loan counselors, such as the National Foundation for Credit Counseling or The Institute of Student Loan Advisors. These organizations work with borrowers to help them figure out the best strategies for dealing with their loans and overall financial health. 

Alternatively, if you’ve reached the point of needing to settle your student loans or file for bankruptcy, seek an attorney who specializes in student loans. For private student loan help, try The National Association of Consumer Advocates. For federal student loans, search the American Bar Association.


Final Word

The United States is currently experiencing a student loan crisis because of how the debt has impacted American lives.

It’s affected borrowers’ ability to save for retirement and buy a home. It’s also impacted people’s ability to start a family or even choose a job for passion over a paycheck.

And it can do so for decades. Many millennials who’ve entered middle age continue to face debt repayment. And many feel college wasn’t worth it as a result.

But you don’t have to be one of these statistics. I write about student loans precisely to help others avoid my mistakes. Learn from this list so you can borrow wisely and avoid overwhelming student loan debt.  

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Sarah Graves, Ph.D. is a freelance writer specializing in personal finance, parenting, education, and creative entrepreneurship. She’s also a college instructor of English and humanities. When not busy writing or teaching her students the proper use of a semicolon, you can find her hanging out with her awesome husband and adorable son watching way too many superhero movies.

Source: moneycrashers.com

Here’s How The Saver’s Credit Can Lower Your Tax Bill by $2,000

You might be eligible for 50%, 20% or 10% of the maximum contribution amount.
On the scale of great tax breaks, tax credits are the best. While deductions merely lower your taxable income, a tax credit reduces your actual tax bill dollar-for-dollar.
To be eligible for the Saver’s Credit, you must:
Seriously. Check this out.

What Is the Saver’s Credit?

Next, make your deposit.
Let’s say you do your taxes and discover you owe ,000. If you paid ,000 out of your paycheck to your retirement accounts over the course of the year and received a 0 Saver’s Credit, your tax bill would shrink to 0.
If you’re a low- or middle-income worker, you can claim the Saver’s Credit — also known as the retirement savings contributions credit — by adding money to a 401(k) or individual retirement account (IRA).
The Internal Revenue Service sets maximum adjusted gross income caps for the retirement savings contribution credit each year.
The IRS actually gives taxpayers until April 15, 2022, to make contributions to individual retirement accounts and include those investments on their 2021 taxes. Pretty cool, huh?
Not only do a lot of people forget about this credit, many low-income workers miss out on the sweet tax benefits of saving for retirement because they worry doing so will strain their tight budgets.

How Do You Qualify for the Saver’s Credit?

First, you’ll need to open a retirement account if you don’t have one already. You can open one with any brokerage firm or robo-advisor. Or, you can start contributing money to your workplace 401(k).
Your income determines the percentage of your retirement savings that will be credited to your tax bill.

  • Be 18 years or older and file a tax return.
  • Not claimed as a dependent on someone else’s tax return.
  • Not be a full-time student. (However, you’re still eligible for the Saver’s Credit if you’re enrolled in an online-only school or participating in on-the-job training).
  • Save some money in a retirement account, like an employer-sponsored 401(k).

It’s important to note that this government tax benefit is not a deduction, but a credit.
Here’s what eligible taxpayers need to do to take advantage of the Saver’s Credit.
How much the Saver’s Credit is worth depends on how much you contribute to your retirement account, your filing status and your AGI.

  • $66,000 for married filing jointly.
  • $49,500 for head of household.
  • $33,000 for a single filer or any other filing status.
Pro Tip
The maximum amount of the Saver’s Credit cannot exceed ,000 for single filers or ,000 for joint filers in 2022.

How Much Is the Saver’s Tax Credit Worth?

It’s called the Saver’s Credit, and it’s one of the most valuable tax credits available. But it’s also one of the most overlooked.

Pro Tip
Lastly, you need to file Form 8880: Credit for Qualified Retirement Savings Contributions with the IRS. If you’re using online tax software, like TurboTax, then it’s even easier to file this form with your tax return.

Finally, you must contribute new money to a retirement plan: Rollover contributions from an existing account — like a 401(k) rollover into an IRA — don’t count.
For example, a single filer earning ,000 who invests ,000 in a Roth IRA would receive a maximum credit for 50% of their contribution, or ,000.
One drawback about the Saver’s Credit is it’s nonrefundable. That means the tax credit can be used to offset income-tax liability but not as a refund. In other words if you owe no taxes but qualify for the Saver’s Credit, Uncle Sam won’t cut you a check. Bummer.

Keep reading to learn who is eligible for the Saver’s Credit and how it works.

Filing status 50% of contribution 20% of contribution 10% of contribution
Single Filers, Married Filing Separately, or Qualifying Widow(er) AGI of $19,750 or below AGI of $19,751 – $21,500 AGI of $21,501 – $33,000
Married Filing Jointly AGI of $39,500 or below AGI of $39,501 – $43,000 AGI of $43,001 – $66,000
Head of Household AGI of $29,625 or below AGI of $29,626 – $32,250 AGI of $32,251 – $49,500

When you file your 2022 taxes for the 2021 tax year, your adjusted gross income (AGI) must fall below the following thresholds to qualify for the Saver’s Credit:
If you earn too much to qualify for the Saver’s Credit, you can still receive a tax deduction by contributing to a traditional IRA.
It’s worth checking to see if you qualify for the Saver’s Credit, especially if you or your spouse were unemployed or experienced a reduction of income in 2021.

How Do I Claim the Saver’s Credit?

As you can see, people with the lowest income benefit most from the Saver’s Tax Credit.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
But a single filer earning ,000 who contributed ,000 to a Roth IRA would receive a credit of just 10% of the amount they invested, or 0.

  • Traditional or Roth IRA
  • Traditional or Roth 401(k)
  • SIMPLE IRA
  • SEP IRA
  • ABLE account (if you’re the designated beneficiary)
  • 403(b) plan
  • 457(b) plan
  • A federal Thrift Savings Plan

Ready to stop worrying about money?
First, you’ll need to meet some basic requirements.
Source: thepennyhoarder.com

Other Information About the Saver’s Tax Credit

The Saver’s Credit is worth up to ,000 for single filers, or ,000 for married couples filing jointly.
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It’s also worth noting that the Saver’s Credit can be claimed in addition to any tax deduction you receive by making qualified retirement savings contributions.
Keep in mind that the percentage of your retirement contribution you can receive as a credit decreases as your income increases.
The Saver’s Credit is a way to put money back in your pocket when you save for retirement.
Saver’s Credit Rate for 2022
So if you contribute to a traditional IRA or traditional 401(k), you could receive double tax savings: A reduction in your taxable income equal to the amount you kicked into your retirement account plus the Saver’s Credit (if you qualify). Believe it or not, the government will pay you to save. <!–

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Depending on your adjusted gross income and tax filing status, you can claim the credit for 50%, 20% or 10% of the first ,000 you contribute to a retirement account within a tax year.

This Surprising Generation Saves Best for Retirement

Younger and older workers in an office
fizkes / Shutterstock.com

Saving for retirement is like eating our peas and carrots: We know we should do more of it, but few of us do.

However, it appears that some generations are better than others when it comes to putting away money for their golden years. In fact, one surprising generation can teach the rest of us a thing or two about building a solid financial future.

Recently, Empowering America surveyed more than 2,500 Americans to learn more about how they are saving and preparing for retirement. Following is a look at how four different generations are doing.

1. Baby boomers

Baby boomer couple looking at their finances
John Keith / Shutterstock.com

Participants in this generation contributing to retirement plans: 83.9%

We give boomers a bit of a pass for their sagging savings rate, which is the lowest among the generations surveyed. After all, a decent percentage of boomers are already in retirement and therefore no longer saving for it.

Still, Empowering America characterizes the last-place finish of baby boomers as somewhat surprising, and it is likely that more than a few members of this generation regret not having saved more for their golden years.

If you are among them, check out the tips from Money Talks News founder Stacy Johnson in “I’m 55 and Have No Retirement Savings — What Should I Do?” While you might be a tad past that age, the advice is still great for anyone who is older and only has saved a little.

2. Generation X

Dmytro Zinkevych / Shutterstock.com

Participants in this generation contributing to retirement plans: 85.7%

Members of Generation X are not ready to retire just yet, but they can see the promised land just over the horizon. They are doing a better job than boomers of saving, but younger workers still are outpacing them.

While it might be too late for a baby boomer with no savings to end up rich, workers who belong to Generation X still have time. So, if your goals are ambitious, check out “5 Ways You Can Save $500,000 in 15 Years.”

3. Millennials

A millennial Black couple happily packs to move to another city
fizkes / Shutterstock.com

Participants in this generation contributing to retirement plans: 86%

This much-maligned generation is doing a surprisingly good job of saving for retirement. If you are a millennial, don’t worry about the steady stream of sneers you hear from baby boomers and members of Generation X. It appears that you are going to get the last laugh.

4. Generation Z

Generation Z friends
Rawpixel.com / Shutterstock.com

Participants in this generation contributing to retirement plans: 86.8%

In these trying times, here is a heartening statistic: The working members of the youngest generation surveyed are doing the best job of saving for retirement.

This is especially good news because the earlier you start saving, the more time your money has to compound — and the wealthier you are likely to get.

So, if you are a member of one of the older generations, don’t curse at the young whippersnappers around you or holler for them to “get off your lawn.” Treat them nicely, and maybe they will give you a loan — or at least teach you some valuable lessons about the right way to save.

Can’t find a friendly member of Generation Z to guide you? Sign up for the Money Talks News’ retirement course, The Only Retirement Guide You’ll Ever Need.

Money Talks News founder Stacy Johnson is your guide for the course — a 14-week boot camp intended for those who are 45 or older. It can teach you everything from Social Security secrets to how to time your retirement.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

What Careers Make the Most Money: 75 Jobs for Fuller Pockets

Deciding what career to pursue can be difficult when you don’t know where to start or don’t have a passion for a particular field yet. However, planning early on and researching things such as potential salary can help you feel eager to get your future started.

Choosing to follow a career field that pays a lot can be a difficult but rewarding process. Whether you’re a recent grad or changing careers, learning more about jobs that can help you live a comfortable life is the first step. In this guide, you’ll find out what careers make the most money and what you need to get started.

See Average U.S. Salaries

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The Benefits of a High-Paying Job

Choosing a career that pays well can be very beneficial for your future. If you are looking to start a family, build retirement savings, or travel around the world, finding a high-paying career can get you a step closer to your goals.

Although some people may say that money doesn’t bring you happiness, knowing that you have enough money for all your necessities, such as rent, bills, and groceries, can bring you peace of mind. A recent study shows that larger incomes are associated with a greater well-being and a higher level of satisfaction with life overall​​. In addition to that, it can also make you more productive and help you succeed at work.

the benefits of a high-paying career

What Careers Make the Most Money?

If you’re ready to find a career that will bring you financial security and are willing to persevere and work hard, here are the 75 best-paying jobs in the U.S. according to the U.S. Bureau of Labor Statics National Occupational and Wage Estimates:

1. Anesthesiologist

An anesthesiologist is a doctor that administers anesthetics and analgesics before, during, or after surgery. They are critical to surgery procedures since they allow the surgeon and other physicians to complete invasive procedures with no discomfort to the patient. In addition to administering general and regional anesthesia, they also closely monitor the patient’s vitals. Due to the risk involved, anesthesiology can be a stressful but rewarding career to follow.

  • Average Annual Salary: $271,440
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Internship (one year)
    • Residency (three years)
    • Obtain a state license

2. Surgeon

Working together with anesthesiologists, surgeons* operate on patients who have suffered from injuries or diseases. Surgeons are also leaders of the surgical team, so they have to make important decisions quickly, sometimes involving life or death. There are many different kinds of surgeons, and you can train to become a general surgeon or have a specialization such as neurology or cardiology. If you plan to become a surgeon, it’s necessary to understand the gravity of the job and have a passion for the STEM field.

  • Average Annual Salary: $251,650
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Residency (three to seven years)
    • Obtain a state license

See the Average Salary for Surgeons

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3. Obstetrician and Gynecologist

From providing reproductive system care to bringing a new life into the world, obstetricians and gynecologists play an important role in women’s health. They help prevent, diagnose, and treat conditions affecting the female reproductive system. As a gynecologist, you would primarily handle women’s reproductive health, and as an obstetrician, you would also deal with childbirth in the surgical field.

  • Average Annual Salary: $239,120
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Residency (four years)
    • Pass a written board exam
    • Practice (two years)
    • Pass an oral board exam

4. Orthodontist

If you’re amazed by how braces can help fix teeth irregularities, a career as an orthodontist may be for you. Orthodontists diagnose, examine, and treat imperfect positioning of teeth and oral cavity anomalies. By prescribing and installing braces, orthodontists help improve not only mouth and teeth function but also the appearance of patients’ smiles.

  • Average Annual Salary: $237,990
  • Requirements:
    • Bachelor’s degree (four years)
    • Dental school (four years)
    • Pass a national board exam
    • Residency (two to three years)

5. Oral and Maxillofacial Surgeon

If you’ve ever seen yourself as a dentist but you’re also amazed by how surgery procedures can better someone’s life, becoming an oral and maxillofacial surgeon is a great option for you. These surgeons are dentists with additional training who perform surgeries on the mouth, jaw, and face. They may also diagnose and treat problems in that area, as well as perform surgery to improve the function and appearance of the patient’s facial structure.

  • Average Annual Salary: $234,990
  • Requirements:
    • Bachelor’s degree (four years)
    • Dental school (three to five years)
    • Residency (four to six years)
    • Board Certification

6. Physician

Just like surgeons, physicians* diagnose and treat illnesses or injuries and help maintain the patient’s overall health. There are two main types of physicians: doctors of osteopathy, who specialize in preventive medicine and holistic care, and doctors of medicine, who take a more scientific approach to diagnosis and treatment. However, within these types, you could choose to have a specialty such as urology, immunology, or radiology, to name a few.

  • Average Annual Salary: $218,850
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Internship
    • Residency according to specialization (three to eight years)

See the Average Salary for Physicians

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7. Psychiatrist

Mental health is as important as physical health, so if you’re fascinated about how the mind works, becoming a psychiatrist* will help you understand the relationship between the mind and body. Psychiatrists diagnose, treat, and help prevent mental disorders such as bipolar disorder, depression, and schizophrenia. They can also prescribe medications and recommend a patient be hospitalized.

  • Average Annual Salary: $217,100
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Obtain a license
    • Certification from the American Board of Psychiatry and Neurology
    • Residency (four years)

See the Average Salary for Psychiatrists

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8. Prosthodontists

Prosthodontists specialize in improving the function of your mouth. They diagnose and treat complex issues, as well as design and rehabilitate prostheses for patients who have trouble with their bite, missing teeth, or who want to improve their appearance. If you have a passion for physics, medicine, and have great attention to detail and some artistic skills, prosthodontics may be a great fit for you.

  • Average Annual Salary: $214,870
  • Requirements:
    • Bachelor’s degree (four years)
    • Dental school (four years)
    • Post-doctoral residency (three years)
    • Obtain a state license

9. Family Medicine Physician

If you don’t want to be tied to diagnosing and treating a particular health condition, becoming a family medicine physician can be a good career option. They diagnose, treat, and provide preventive care to families of all ages. As primary care providers, they are very versatile and can treat anything from a simple cough to a broken bone.

  • Average Annual Salary: $214,370
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Family medicine residency (four years)
    • Pass board exam

See the Average Salary for Physicians

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10. General Internal Medicine Physician

General internal medicine physicians diagnose and treat a variety of injuries and diseases relating to the internal organs. Commonly referred to as general internists, they primarily treat adults and adolescents and are trained to handle a broad spectrum of illnesses. If you enjoyed your anatomy science class in high school, this may be a good career path for you.

  • Average Annual Salary: $210,960
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Internal medicine residency (three years)
    • Obtain board certification

11. Chief Executive

If leadership is your forte and you thrive by helping others achieve their goals, becoming a CEO can help you put your skills into action. At the highest level of management of a company, chief executives decide and formulate company policies according to the guidelines set up by a board of directors. They are not only tied to planning, directing, and coordinating operational activities within the company, but also act as a leader to help the company meet its goals.

  • Average Annual Salary: $197,840
  • Requirements:
    • Bachelor’s degree (recommended)
    • Business and industry experience

12. Dentist

Similar to orthodontists, dentists* also diagnose and treat issues with the mouth, gums, and teeth. Dentists treat more than just cavities — they extract teeth, perform teeth cleaning, and fit dentures. Another benefit of being a dentist is being able to build relationships with patients and see improvement with their teeth over time.

  • Average Annual Salary: $194,930
  • Requirements:
    • Bachelor’s degree (four years)
    • Dental school (four years)
    • Pass National Board Dental Examinations

See the Average Salary for Dentists

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13. Nurse Anesthetist

Nurse anesthetists* administer anesthesia on patients as well as monitor their vital signs and their recovery. They are registered nurses who specialize in anesthesiology and assist surgeons and physicians to help them complete procedures. If you want to meet patients of all ages and from all walks of life and make them feel secure and calm before surgery, becoming a nurse anesthetist might be just right for you.

  • Average Annual Salary: $189,190
  • Requirements:
    • Bachelor’s degree (four years)
    • Registered nurse licensure
    • Experience in critical care (one year)
    • Nurse anesthesia program
    • Pass the national certification exam

See the Average Salary for Nurse Anesthetists

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14. Pilot

Are you an adrenaline junkie with a head for heights? If so, becoming an airline pilot can be a great way to make a living off your passion. Pilots* operate and fly airplanes that transport passengers and cargo. As a pilot, you can fly aircraft regionally, nationally, and internationally or even become a flight instructor. In addition to flying, pilots also make sure the aircraft is functioning properly, checking for malfunctions and needed maintenance, as well as ensuring the weather conditions and routes are safe.

  • Average Annual Salary: $186,870
  • Requirements:
    • Bachelor’s degree (recommended)
    • Military, college, or civilian flight school
    • Federal Air Transport certificate
    • ATP license (1,000-1,500 hours of flying)
    • Pass a medical exam

See the Average Salary for Pilots

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15. Pediatrician

If seeing children develop their skills and grow strong sounds fascinating to you, you can be part of their journey as a pediatrician*. Pediatricians diagnose, treat, and help prevent injuries and diseases in children from infancy to adulthood. For more specific treatment, they might also refer them to a specialist. Pediatricians tend to love being around children and can also acquire a subspecialty, such as oncology or developmental-behavioral pediatrics.

  • Average Annual Salary: $184,570
  • Requirements:
    • Bachelor’s degree (four years)
    • Medical school (four years)
    • Pass a licensure exam
    • Residency (three years)
    • Obtain American Board of Pediatrics certification

See the Average Salary for Pediatricians

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16. Computer and Information Systems Manager

Technology is a big part of our lives these days, and if you’re good with computers and data, you might find a passion for this career. Computer and information systems managers plan, coordinate, and direct activities in electronic data processing, computer programming, information systems, and systems analysis. They are there to help companies and organizations navigate technology. In addition to supervising workers, they also help install and upgrade systems and protect them from potential threats.

  • Average Annual Salary: $161,730
  • Requirements:
    • Bachelor’s degree (four years)
    • Graduate degree (recommended)
    • Industry certifications and experience

17. Architectural and Engineering Manager

From a small coffee shop to a huge skyscraper, do you ever wonder how buildings come to life? As an architectural and engineering manager, you would plan, direct, and coordinate architectural and engineering activities or work on research and development. Some managers work in offices designing and coordinating the creation of buildings that are safe and purposeful. Others may also work in research laboratories and construction sites.

  • Average Annual Salary: $158,100
  • Requirements:
    • Bachelor’s degree (four years)
    • Graduate degree (recommended)
    • Industry certifications and experience

18. Natural Science Manager

If science was your favorite subject as a kid and you loved to do experiments, becoming a natural science manager might make your younger self very happy. Natural science managers supervise scientists such as chemists, physicists, and biologists by planning, directing, and coordinating activities in those fields. They may spend their time in labs or in the office coordinating production, testing, and quality control of research projects.

  • Average Annual Salary: $154,930
  • Requirements:
    • Bachelor’s degree (four years)
    • Graduate degree (recommended)
    • Experience as a scientist

19. Marketing Manager

Are you a creative person with a love for problem-solving and communicating with others? If so, becoming a marketing manager* might be what you’re looking for. Marketing managers supervise the whole process of creating and implementing marketing campaigns. They determine the demands of products and services and identify potential customers and opportunities. In addition to developing strategies to maximize profits, they also provide help with hiring staff and team-building.

  • Average Annual Salary: $154,470
  • Requirements:
    • Bachelor’s degree (four years)
    • Graduate degree (recommended)
    • Industry certifications and experience

20. Petroleum Engineer

Becoming a petroleum engineer* is the right path for you if you want to help provide the world with energy. Petroleum engineers design equipment to help extract oil and gas from the earth and determine the need for new tools and equipment. To do this, they spend a lot of time researching, studying, and analyzing data to find the safest and most cost-effective way to perform the extractions.

  • Average Annual Salary: $154,330
  • Requirements:
    • Bachelor’s degree (four years)
    • Professional engineering license
    • Society of Petroleum Engineers certification (recommended)

21. Financial Manager

Financial managers* are responsible for the finances of a company by planning and directing accounting, insurance, securities, banking, and any other financial activities. Their tasks can range from creating financial reports, developing long-term financial goals, and directing investment activities. If you have a love for numbers and have great attention to detail and communication skills, this is the job for you.

  • Average Annual Salary: $151,510
  • Requirements:
    • Bachelor’s degree (four years)
    • Master’s degree (recommended)
    • Obtain some certifications and licensures

See the Average Salary for Financial Managers

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22. Podiatrist

If you want to join a critical field and make an impact in people’s lives by relieving their pain, becoming a podiatrist* might be the right step for you. Podiatrists are physicians who specialize in diagnosing and treating diseases and deformities of the human foot, ankle, and lower leg. They are able to perform surgeries and transplants, and can also prescribe medications and braces for less complex cases.

  • Average Annual Salary: $151,110
  • Requirements:
    • Bachelor’s degree (four years)
    • Podiatric medical school (four years)
    • Residency (three years)
    • Pass American Podiatric Medical Licensing Exam

See the Average Salary for Podiatrists

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23. Lawyer

Representing clients in civil and criminal legal issues and disputes, lawyers can also advise clients on legal transactions and prepare legal documents. As a lawyer, you may work in the private sector for big firms and even small businesses, or work in the public sector for the government as a district attorney or public defender. If you have a passion for helping people and solving conflicts, this might be the right path for you.

  • Average Annual Salary: $148,910
  • Requirements:
    • Bachelor’s degree (four years)
    • Law school (three years)
    • Pass a state-specific law exam
    • Internship experience

24. Sales Manager

Sales managers* direct an organization’s sales team by planning, directing, and coordinating the distribution of a product or service. Some duties may include establishing sales territories, setting quotas and goals, analyzing sales statistics, and training sales representatives. If you want to become a sales manager, you have to not only be great at selling but also making strategic decisions and motivating people.

  • Average Annual Salary: $147,580
  • Requirements:
    • Bachelor’s degree (recommended)
    • Master’s degree (recommended)
    • Industry experience and certifications

See the Average Salary for Sales Managers

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25. Advertising and Promotion Manager

As an advertising and promotion manager*, you would plan and coordinate advertising programs and policies. They build interest in purchasing products or services from their organization, as well as create marketing materials such as posters, giveaways, brochures, and coupons. If you want to have a job in which you can put your creativity to action, this is the right career for you.

  • Average Annual Salary: $147,560
  • Requirements:
    • Bachelor’s degree (recommended)
    • Master’s degree (recommended)
    • Industry experience and certifications

50 Additional High-Paying Careers

If the careers mentioned above are not a fit for you, there are plenty of other jobs that pay a lot of money. Here are 50 additional careers that make the most money, listed by average annual salary:

  • Physicist* – $137,700
  • Compensation and Benefits Manager – $137,160
  • Astronomer – $136,480
  • Public Relations and Fundraising Manager* – $135,580
  • Law Teacher – $134,760
  • Human Resources Manager* – $134,580
  • Purchasing Manager* – $132,660
  • Judge* – $131,850
  • Computer and Information Research Scientist – $130,890
  • Air Traffic Controller* – $127,440
  • Computer Hardware Engineer – $126,140
  • Training and Development Manager* – $125,920
  • General and Operations Manager* – $125,740
  • Pharmacist* – $125,460
  • Optometrist* – $125,440
  • Nuclear Engineer – $125,130
  • Health Specialties Teacher – $124,890
  • Political Scientist – $124,100
  • Personal Service Manager – $123,980
  • Economics Teacher – $123,720
  • Actuary* – $123,180
  • Personal Financial Advisor* – $122,490
  • Aerospace Engineer* – $121,110
  • Economist* – $120,880
  • Computer Network Architect – $119,230
  • Medical and Health Services Manager – $118,800
  • Industrial Production Manager – $118,190
  • Sales Engineer* – $117,270
  • Physician Assistant* – $116,390
  • Nurse Midwife* – $115,540
  • Education Administrator* – $115,200
  • Chemical Engineer* – $114,820
  • Nurse Practitioner* – $114,510
  • Art Director* – $114,490
  • Software Developer* – $114,270
  • Engineering Teacher – $114,130
  • Industrial-Organizational Psychologist – $112,690
  • Mathematician – $112,530
  • Electronics Engineer* – $112,320
  • Geoscientist – $112,110
  • Air Transportation Worker – $111,420
  • Physical Scientist – $110,100
  • Veterinarian* – $108,120
  • Administrative Services and Facilities Manager – $108,120
  • Information Security Analyst* – $107,580
  • Business Teacher – $107,270
  • Construction Manager* – $107,260
  • Electrical Engineer* – $105,990
  • Biochemist – $104,810
  • Microbiologist* – $91,840

Deciding your future is never easy, but planning in advance can not only give you peace of mind but help you achieve your goals faster. If having financial freedom and emotional well-being is a priority to you, having a high-paying job can help you achieve that. It’s not always easy to do, and having a job with a high salary will be demanding. Now that you went through the list of careers that make the most money, you can feel inspired to begin following your dreams.

How to Land a High-Paying Career

Methodology

In order to find out the top 75 careers that make the most money, we used data from the U.S. Bureau of Labor Statics National Occupational and Wage Estimates from May 2020. The average annual salary is the data provided under annual mean age and sorted from highest to lowest. To calculate the average of what Americans spend their yearly salary on, we used the average expenditure per consumer unit research. To achieve the percentages, we added up the income quintiles percentages provided in Table C for each category and divided them by 5, which resulted in the average percentage spend.

*The salaries in Mint’s Salary tool have a different source and might differ from the ones listed from the Bureau of Labor Statistics.

Sources: Bureau of Labor Statistics | Indeed | Monster | BLS Expenditures | PNAS | AmeriTrade

The post What Careers Make the Most Money: 75 Jobs for Fuller Pockets appeared first on MintLife Blog.

Source: mint.intuit.com

Factoring Inflation into Your Retirement Plan

Right now, inflation is top of mind for everyone, perhaps especially retirees.

Inflation is important. But it is only one of the risks that retirees have to plan for and manage. And like the other risks you have to manage, you can build an income plan so that rising costs (both actual and feared) do not ruin your retirement.

Inflation and Your Budget

Remember that in retirement your budget is different than when you were working, so you will be impacted in different ways. And, of course, when you were working your salary and bonuses might have gone up with inflation, which helped offset long-term cost increases.

Much of your pre-retirement budget was spent on housing — an average of 30% to 40%. Retirees with smaller or paid-off mortgages will have lower housing costs even as their children are busy taking out loans to buy houses, and even home equity loans to pay for home improvements.

On the other hand, while health care looms as a big cost for everyone, for retirees these expenses can increase faster than income. John Wasik recently wrote an article for The New York Times that cited a recent study showing increases in Medicare Part B premiums alone will eat up a large part of the recent 5.9% cost of living increase in Social Security benefits. As Wasik wrote, “It’s difficult to keep up with the real cost of health care in retirement unless you plan ahead.”

Inflation and Your Sources of Income

To protect yourself in retirement means (A) creating an income plan that anticipates inflation over many years and (B) allowing yourself to adjust for inflation spikes that may affect your short-term budget.

First, when creating your income plan, it’s important to look at your sources of income to see how they respond directly or indirectly to inflation.

  1. Some income sources weather inflation quite well. Social Security benefits, once elected, increase with the CPI. And some retirees are fortunate enough to have a pension that provides some inflation protection.
  2. Dividends from stocks in high-dividend portfolios have grown over time at rates that compare favorably with long-term inflation.
  3. Interest payments from fixed-income securities, when invested long-term, have a fixed rate of return. But there are also TIPS bonds issued by the government that come with inflation protection.
  4. Annuity payments from lifetime income annuities are generally fixed, which makes them vulnerable to inflation. Although there are annuities available that allow for increasing payments to combat inflation.
  5. Withdrawals from a rollover IRA account are variable and must meet RMD requirements, which do not track inflation.   The key in a plan for retirement income, however, is that withdrawals can make up any inflation deficit. In Go2Income planning, the IRA is invested in a balanced portfolio of growth stocks and fixed income securities. While the returns will fluctuate, the long-term objective is to have a return that exceeds inflation.
  6. Drawdowns from the equity in your house, which can be generated through various types of equity extraction vehicles, can be set by you either as level or increasing amounts. Use of these resources should be limited as a percentage of equity in the residence.

The challenge is that with these multiple sources of income, how do you create a plan that protects you against the inflation risk — as well as other retirement risks?

Key Risks That a Retirement Income Plan Should Address

A good plan for income in retirement considers the many risks we face as we age. Those include:

  1. Longevity risk. To help reduce the risk of outliving your savings, Social Security, pension income and annuity payments provide guaranteed income for life and become the foundation of your plan. As one example, you should be smart about your decision on when and how to claim your Social Security benefit in order to maximize it.
  2. Market risk. While occasional “corrections” in financial markets grab headlines and are cause for concern, you can manage your income plan by reducing your income’s dependence on these returns.  By having a large percentage of your income safe and less dependent on current market returns, and by replanning periodically, you are pushing a significant part of the market risk (and reward) to your legacy. In other words, the kids may receive a legacy that reflects in part a down market, which can recover during their lifetimes.
  3. Inflation risk. While a portion of every retiree’s income should be for their lifetime and less dependent on market returns, you need to build in an explicit margin for inflation risk on your total income. The easiest way to do that is to accept lower income at the start.  For example, under a Go2Income plan, our typical investor (a female, age 70 with $2 million of savings, of which 50% is in a rollover IRA) can plan on starting income of $114,000 per year under a 1% inflation assumption. It would be reduced to $103,000 under a 2% assumption.

So, what factors should you consider in making that critical assumption about how much inflation you need to account for in your plan?

Picking a Long-Term Assumed Inflation Rate  

Financial writers often talk about the magic of compound interest; in real numbers, it translates to $1,000 growing at 3% a year for 30 years to reach $2,428. Sounds good when you’re saving or investing. But what about when you’re spending? The purchase that today costs $1,000 could cost $2,428 in 30 years if inflation were 3% a year.

When you design your plan, what rate of inflation do you assume? Here are some possible options (Hint: One option is better than the others):

  • Assume the current inflation of 5.9% is going to continue forever.
  • Assume your investments will grow faster than inflation, whatever the level.
  • Assume a reasonable long-term rate for inflation, just like you do for your other assumptions.

We like the third choice, particularly when you consider the chart below. Despite the dramatically high rate of today’s inflation that affects every result in the chart, the long-term inflation rate over the past 30 years was 2.4%. For the past 10 years, it was even lower at 2.1%.

A Long-Term View Smooths Inflation Spikes

A table shows what a $1,000 item would cost today if purchased in years ranging from 2020 to 1991, showing inflation rates of 6.9% currently, down to 2.4% for 30 years.A table shows what a $1,000 item would cost today if purchased in years ranging from 2020 to 1991, showing inflation rates of 6.9% currently, down to 2.4% for 30 years.

Managing Inflation in Real Time

Whether you build your plan around 2.0%, 2.5% or even 3.0%, it is helpful to realize that any short-term inflation rate will not match your plan assumption. My view is that you can adjust to this short-term inflation in multiple ways.

  • Where possible, defer purchases that are affected by temporary price hikes.
  • Where you can’t defer purchases, use your liquid savings accounts to purchase the items, and avoid drawing down from your retirement savings.
  • If you believe price hikes will continue, revise your inflation assumption and create a new plan. Of course, monitor your plan on a regular basis.

Inflation as Part of the Planning Process

Go2Income planning attempts to simplify the planning for inflation and all retirement risks:

  1. Set a long-term assumption as to the inflation level that you’re comfortable with.
  2. Create a plan that lasts a lifetime by integrating annuity payments.
  3. Generate dividend and interest yields from your personal savings, and avoid capital withdrawals.
  4. Use rollover IRA withdrawals from a balanced portfolio to meet your inflation-protected income goal.
  5. Manage your plan in real time and make adjustments to your plan when necessary.

Inflation is a worry for everyone, whether you are retired or about to retire. Put together a plan at Go2Income  and then adjust it based on your expectations and investments. We will help you create the best approach to inflation and all retirement risks you may face.

President, Golden Retirement Advisors Inc.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.

Source: kiplinger.com

6 Ways to Increase Your Retirement Savings in the New Year

Seniors putting coins in a jar
Rob Marmion / Shutterstock.com

Editor's Note: This story originally appeared on The Penny Hoarder. If you’re feeling shaky about your retirement savings, you’re not alone. According to a February 2021 research report by the National Institute on Retirement Security, 56% of respondents said they’re worried about achieving a financially secure retirement. If your savings fell short in 2021, the new year is a great time to get…

Source: moneytalksnews.com

A 2022 Guide to Key Dates for Retirees

Deadlines are relentless, whether for tax filings, health plan open enrollments or required distributions from retirement savings. The clock is always ticking, even in retirement, and the consequences for missing a financial deadline can be painful.

This guide to key dates in 2022 serves as both a reminder and a checklist of what you need to do and when. Post it on your refrigerator or thumbtack it to a bulletin board and use it to manage your finances better and on time.

JAN. 1. A new year is a clean slate, a chance to pare down your spending and beef up your savings. In 2022, you have a bigger incentive to do both because the maximum amount that can be contributed to an employer’s retirement savings plan jumps to $20,500, up from $19,500 for the past two years. People age 50 and older can sock away an additional $6,500.

The contribution limits for IRAs remain unchanged at $6,000, with an additional $1,000 allowed for someone 50 or older. Although there is no age limit for contributing to an IRA, you will need enough earned income to cover the contributed amount. Note that IRA contributions phase out for high earners (see IRS Publication 590-A).

The start of the new year also marks the beginning of traditional Medicare’s general enrollment period, which lasts until March 31. During this window, individuals who missed signing up for Medicare when they turned 65 or during a special enrollment period get another chance, with coverage beginning July 1. The same window also serves as Medicare Advantage’s open enrollment period, when those already enrolled in an Advantage plan can elect a different one or switch to traditional Medicare.

JAN. 18. The calendar and the Martin Luther King holiday give you three extra days to pay fourth-quarter 2021 estimated taxes. You can skip this deadline, however, if you file your taxes for the year and pay any remaining balance by Jan. 31.

MARCH 31. General enrollment for traditional Medicare and open enrollment for Medicare Advantage end.

APRIL 1. This deadline only matters to those who turned 72 in 2021 and didn’t take a required minimum distribution last year. Age 72 is when you must begin taking distributions from tax-deferred retirement savings accounts, but first-timers can delay taking an initial RMD until April 1 of the year following their 72nd birthday. Thereafter, the deadline for taking RMDs is every Dec. 31. If you delay taking your first RMD, you will need to take a second distribution in the same year, which will jack up your overall taxable income and possibly tip you into a higher tax bracket.

Although Roth IRAs have no required minimum distributions, Roth 401(k)s do. You can skip taking an RMD from your current employer’s plan if you continue working there and don’t own 5% or more of the company. But you must take RMDs from traditional IRAs and the 401(k)s of previous employers.

To calculate your RMD, take the value of the account balance on Dec. 31, 2021, and divide it by the corresponding life expectancy factor for your age based on your birthday in 2021. Use the tables in IRS Publication 590-B to determine your life expectancy factor.

APRIL 18. A regional holiday is responsible for the extra three days you have to file your 2021 taxes this year. In 2022, the District of Columbia celebrates Emancipation Day on April 15, pushing the filing deadline to Monday April 18. On this day, your 2021 taxes are due, along with any money owed, even if you file for a six-month extension. Today is also your last chance to make your 2021 contribution to an IRA. If you file quarterly, this is also the deadline for the first estimated tax payment for 2022.

JUNE 15. Your second-quarter estimated tax payment is due.

JULY 1. Use this midyear point to assess your 2022 tax tab. Are your estimated tax payments on track to avoid underpayment penalties? You can dodge them if you pay at least 90% of the current year tax bill or 100% of last year’s payment (110% if your income is high). You should also consider other tax-saving moves for the year.

SEPT. 15. Third-quarter estimated taxes are due.

SEPT. 30. By now, you should have Medicare’s annual notice of changes to formularies, benefits and premiums for either a Medicare Advantage or Part D prescription drug plan. Changes take effect in 2023. Review these changes carefully.

OCT. 15. Time’s up for all you extension filers. Today is the deadline for turning in your 2021 tax return. Also, Medicare open enrollment begins today. You have from now until Dec. 7 to switch between traditional Medicare and Medicare Advantage or choose new Advantage or Part D prescription drug plans, with coverage beginning next year.

NOV. 1. In most states, early retirees can begin shopping today for a 2023 health plan on the Affordable Care Act exchanges. You have until Dec. 15 to select coverage.

DEC. 1. Act by today if you plan to make a qualified charitable distribution from your IRA so that the charity receives the money by the end of the year. Traditional IRA owners who are at least age 70½ can transfer up to $100,000 directly to charity in 2022. A QCD still counts as an RMD but is excluded from your taxable income.

DEC. 7. Medicare’s open enrollment ends today.

DEC. 15. The ACA’s open enrollment ends. Ideally, your RMD should be taken by this date too. Brokerages get busy at the end of the year, and any delay on their part could result in you missing the Dec. 31 deadline for taking an RMD, an expensive error that comes with a 50% penalty on the missed amount.

DEC. 31. Here’s your last chance to trim your 2022 tax bill. Charitable gifts, 401(k) contributions, Roth conversions and the sale of a losing investment to offset market gains elsewhere must all be completed by today to count for 2022.

Source: kiplinger.com

The Penny Hoarder’s Top Budgeting Stories of 2021

Your household runs better when you and your significant other are on the same page about spending, saving and other financial decisions. Sharing the same budgeting app helps you and your partner stay in sync.
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There’s no way to predict how long you’ll need your retirement savings to last, so it’s important to be a conscious spender after you’ve said goodbye to your 9-to-5.

10 Top Budgeting Stories From 2021

We talked with Lowry about how to navigate those essential but uncomfortable conversations.

1. Save Money Every Month With the 70/20/10 Budget

This year, we caught up with financial influencer Erin Lowry to discuss her latest book “Broke Millennial Talks Money.” The book details how to have those awkward money discussions with the important people in your life.
Source: thepennyhoarder.com

If you’re not a fan of the 70/20/10 budget, try one of these other budgeting methods.

2. Prioritize Health in Your Budget With These Cheap Gym Memberships

2021 was a record year for people resigning from their jobs. But income loss — whether intentional or involuntary — can be a major source of financial stress.
If you’re in this boat (or are about to be), here is some helpful advice on how to handle financial matters.

3. Enjoy a Low-Cost Vacation With Our Guide to Visiting the National Parks

This article will help you build a retirement budget so you don’t have to stress about money in your golden years.
Take this advice with you into the new year.

4. Learn How to Have Tough Money Talks from Broke Millennial’s Erin Lowry

It’s easy to get caught up in all the darling details of planning a wedding — and then get overwhelmed when tallying up all the costs.
Check out our guide to a low-cost vacation at one of the national parks.

5. Download One of These Best Budgeting Apps for Couples

It’s a good budget to implement if you’re working toward savings goals and want to be more intentional about putting money aside each month.
Ready to stop worrying about money?

6. Plan for Your Big Day by Creating a Wedding Budget

Maintaining a budget is an excellent way to start. While keeping tabs on your cash flow isn’t necessarily fun, it will help you stay focused on your future goals.
When you join together as one in matrimony, you might believe all aspects of your life should be intertwined — including your finances. But there are reasons why separate bank accounts may be better for you.

7. Consider Keeping Separate Bank Accounts from Your Spouse

Here are five ways to manage when you experience a significant reduction in your household income.
Here are our recommendations for the best budgeting apps for couples.

8. Navigate Going From Two Incomes to One

As 2021 winds down, here are the best budgeting lessons we learned that we’ll be carrying into the new year.

This post shares the circumstances where it might be more beneficial to maintain individual bank accounts. It also explains how to successfully navigate shared expenses and financial goals.

9. Learn How to Budget for Everything When You’re in the Sandwich Generation

Staying home for much of 2020 gave us the itch to travel as much as we could this year. Visiting the national parks helps to keep more money in the bank while still satisfying that wanderlust.
The fitness industry wants you to think you need to invest in a bunch of classes, equipment, fancy yoga pants and more to stay in peak physical shape. But you don’t have to spend all your money in pursuit of a healthier lifestyle.

10. Set Up a Retirement Budget so You Don’t Run Out of Money

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Nicole Dow is a senior writer at The Penny Hoarder.
As life slowly crept back to normal in 2021 following the financial chaos and uncertainty of the year before, we were left with the desire to get a better handle on our individual money situations. <!–

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The 70/20/10 budget is a percentage-based money management system where you earmark 70% of your take-home pay toward monthly expenses, 20% for saving and investing and 10% for extra debt payments or donating.

5 Reasons to Work as Long as You Live

Older man working from home
astarot / Shutterstock.com

While countless workers dream of retirement, millions more have decided to work full time or part time after age 65:

In fact, the U.S. Bureau of Labor Statistics predicts that by 2024, there will be about 13 million working Americans age 65 and older.

Working longer might be your best option. Here are several reasons why.

1. Increase financial security

If you’re worried about outliving your savings, working longer is the answer. It can let you:

  • Wait to collect Social Security. Delaying claiming your benefits until age 70 earns you payments that are much larger than if you had started claiming at or before your full retirement age.
  • Keep adding to your retirement savings.
  • Leave your nest egg untouched longer. This means having more money to use later and giving your savings more time to grow and compound.

A couple of years ago, MarketWatch cited these findings from the National Bureau of Economic Research:

“The longer you work, the longer you can add to your retirement savings, the more time they have to grow, and the less you will need when you eventually retire. Throw in the boost to Social Security as well, and ‘delaying retirement by one year is roughly 3.5 times as impactful as saving an additional 1% of wages for 30 years,’ calculated financial researchers recently.”

2. Stay sharp

A job gives you projects to complete, tasks to perform, deadlines to meet and co-workers to team up with.

If all that vanishes in retirement, you may risk losing some mental acuity. One researcher found that people reduced their risk of dementia by 3.2% for each additional year they worked.

Another researcher found that folks who didn’t fully retire and kept working — whether through self-employment, part-time work or a temporary job — enjoyed better mental and physical well-being than those who retired completely.

3. Live longer

One analysis of a long-term public health study showed that Americans retiring at age 66 had an 11% lower rate of mortality than those working until 65, Oregon State University doctoral student Chenkai Wu told the Harvard Business Review in 2016. Even unhealthy people in the survey had a lower risk of death when delaying retirement by a year.

The research in this area is interesting but not conclusive, Wu said. A connection between working and a lower mortality risk doesn’t prove one causes the other.

4. Feel relevant

Like it or not, it’s not uncommon to measure ourselves and others by career status and achievement. Leaving work forever can provoke an identity crisis for some.

But there are many alternatives to withdrawing from work completely. For example, workers may transition to an “encore career” in their profession or elsewhere to use their skills in a new way.

Several websites can help older workers find encore careers and deploy skills they spent decades acquiring and perfecting.

5. Retain social networks

After decades of employment, co-workers may be among your closest friends. Leaving that world can be a shock to the system, and 43% of people over 60 reported feeling lonely on a regular basis, says U.S. News & World Report, citing a study from the University of California at San Francisco.

The lesson: Working helps retain vital connections. If you retire, take steps to build new social networks through church, neighborhood, classes, clubs and elsewhere.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com