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Retirement in the United States

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Retirement in the United States. The pension system in the United States operates on a pay-as-you-go basis. Every American worker is eligible for a basic retirement pension paid by US Social Security. In addition, American workers can also subscribe to occupational pension funds to which they contribute throughout their careers.

General Rules

The American retirement system

The “pay-as-you-go” pension system was put in place by Franklin D. Roosevelt with the Social Security Act of 1935. Called “Old Age Survivor Insurance” (OASI), this plan provides for automatic levy of a tax on the wages of employees and the income of employers.

At the same time, it is common for workers – most often managers who can afford it – to contribute to occupational pension funds. These allow them to supplement their retirement pensions and provide them with higher income than those received with the basic scheme. Therefore, 2 options are available to them:

-or they choose to let the employer directly take care of placing part of their salary in a private fund called the “defined benefit plan”;

-or they themselves invest part of their income in private funds called a “defined contribution plan” (such as 401 (k) or 403 (b)).

Note: the 401 (k) plan allows the employee to save by tax exemption on invested money and capital income which will be placed in an investment portfolio until their withdrawal. The 403 (b) plan is a similar system offered to employees of tax-exempt organizations such as hospitals or schools.

Following the recent financial crises and the increase in taxes on these plans, the use of defined benefit plans is less and less offered by employers.

Contributions

A contribution is levied under the OASI at a rate of 12.40% (6.20% for the employer and 6.20% for the employee), under an annual ceiling of $ 132,900 in 2019.

Age conditions and insurance period

In the United States, a worker can retire at age 62. However, the age for obtaining a full retirement pension is higher. It depends on his year of birth. In the event of early departure, the pension will be subject to a discount of up to 32.5%.

Example: a person born in 1955 will receive his full pension at the age of 66 years and 2 months. If she decides to retire at the age of 62, she will only receive 74% of her pension.

Regarding funded pension funds, no age condition to benefit from them applies. However, penalties may be applied if the pensioner decides to receive them before he turns 70.

Retiree income

The calculation of the retirement pension

The amount of the basic retirement pension is calculated on the basis of the 420 best monthly earnings (ie 35 years), according to a progressive formula by income bracket. The replacement rate applied to the first tranche is 90%, it is 15% to the last tranche.

To claim the payment of the basic pension at the full rate, the pensioner must have obtained 40 “credits” (corresponding to the French quarters). To validate a “credit”, the pensioner must have earned at least $ 1,360 during the quarter in 2019. As in France (where this amount is € 1,504.50 in 2019), it is not possible to validate more of 4 “credits” per year.

It is possible for a pensioner who has reached the legal age to receive his retirement at full rate, to delay his retirement, and thus obtain a premium.

Combination of employment and retirement

It is not uncommon for American pensioners to continue working after the age of 62. The regulations on this subject take into account the income collected by this activity to determine the amount of the retirement pension.

Note: the income received does not take into account financial investments, various pensions, annuities, etc.

3 situations are considered:

When the pensioner has reached full retirement age:

The pensioner receives his retirement pension at the full rate, without limitation of income linked to a professional activity.

When the pensioner has not reached full retirement age:

The amount of the retirement pension will be reduced by $ 1 for every $ 2 of activity income over $ 17,640 received in the year (2019).

Example: Jacob receives a basic pension of $ 9,600 ($ 800 x 12 months) each year. At the same time, he has a job that earns him $ 28,000 per year, or $ 10,360 above the ceiling. His pension is reduced by 10,360 / 2 = $ 5,180. In total, he therefore earns 28,000 + (9,600 – 5,180) = $ 32,420.

When the pensioner reaches full retirement age within the year:

The amount of the pension will be reduced by $ 1 for every $ 3 of earned income above $ 46,920 received in the period before the full rate (2019).

Example: Susan will receive her full pension in August 2019. From January to July 2019, she will receive, for her retirement, $ 5,600 ($ 800 x 7 months). Over this same period, his professional activity will bring him $ 48,000, or € 1,080 above the ceiling. Until July, his pension will be deducted at 1,080 / 3 = $ 360. In total, she will earn from January to July 2019 48,000+ (5,600 – 360) = $ 53,240.

Survivor’s allowance (reversion)

When the pensioner dies, the surviving spouse can benefit from his retirement pension subject to having reached the legal age to benefit from the full rate pension. Otherwise, he will only receive a percentage of the deceased’s pension, depending on his age.

Example: the surviving spouse who is 60 years and 11 months old when the pensioner dies will only receive 75.2% of the deceased’s retirement pension.

Divorced spouse’s pension

The United States pension system provides that the ex-spouse can receive the retirement pension of the deceased pensioner as long as the following conditions are met:

-the marriage lasted at least 10 years;

-the ex-spouse has not remarried;

-the ex-spouse is at least 62 years old;

-the retirement pension that the ex-spouse receives or should receive is less than that of the pensioner;

-the pensioner is eligible for the basic pension scheme.

As soon as the ex-spouse has reached the legal age to benefit from the payment of his pension at the full rate, he may request the payment of half of the pensioner’s basic retirement pension.

What to remember about retirement in the United States

While the United States has had a basic pension system since 1935, most workers also contribute to occupational pension funds.

Contributions are 12.40% (6.20% for the employee and 6.20% for the employer).

The legal age is 62, but the age for the full rate depends on the year of birth. If applicable, the pension will be subject to a discount of up to 32.5%.

Americans validate 1 “credit” in the same way as the French validate 1 quarter: by contributing from a certain income ($ 1,360 in 2019), within the limit of 4 per year.

The combination of employment and retirement is unlimited if the retiree meets the conditions for the full rate. Otherwise, his pension will be reduced by 1/2 of the earned income exceeding $ 17,640 (if he reaches the full rate for the same year, the pension is reduced by 1/3 of the earned income exceeding $ 46,920 ).

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Finance

Top 10 tips for buying student insurance

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Don’t wait until the last minute

This is the first tip mentioned as it is also the most important. Although your school may not require you to have a plan until the day of school, it’s never a good idea to take too long on something as important as health insurance. It is best to start looking for a good policy early, even before you leave your home country, which ensures coverage from the moment you arrive at your destination.

Buy a plan that meets your visa requirements

Many places in the world (such as the United States) have health insurance requirements that you are required to meet to enter the country, depending on your visa. Students on an F1 visa do not have to follow federal regulations, and instead must follow the guidelines given by their institution. J1 visa holders, on the other hand, must comply with a strict list of government mandates, including coverage of repatriation, evacuation along with certified minimum periods of validity.

Do not forget the requirements of your school

Your school is aware that not all insurance plans are the same. Because of this, many schools have created an insurance waiver form, listing the requirements that an international student’s plan must meet to be considered comparable.

Find out if you need a waiver form

Some schools require not only that you purchase an international health insurance plan, but also that your insurance company complete an insurance waiver form (also known as a Conformity Form) to demonstrate that you have adequate coverage before registering for classes. After making your purchase you just have to fill out the student part of the form and send it to your insurance company so they can complete it. From there, the company will complete the rest of the form, sign at the bottom, and then email or fax a copy directly to the school.

Check your eligibility

Each health insurance plan has certain criteria that must be met in order to qualify. International student insurance options require a current student visa, but will not require insider information, such as a social security number. Sometimes these plans require you to attend school for a certain number of hours per week in order to remain eligible, so make sure you meet each of the plan’s eligibility requirements before purchasing.

See the specific benefits

Since you will most likely have the same insurance plan throughout your entire school experience, it is imperative that you know exactly what the plan does and does not cover. For starters, make sure your plan has traditional coverage like doctor visits, hospital stays, and prescription drugs, with the policy maximum high enough for you to feel comfortable with. Also, your international student insurance plan should come standardized with travel benefits like emergency medical evacuation and repatriation of remains.

Don’t spend too much

Although no one expects the cost of insurance, international student health insurance is generally affordable, considering that students are often younger and in good health. In addition to the premium each month, it’s important to take note of any out-of-pocket expenses you may incur as well.

Know your documents

Having a plan is important for your health, but as mentioned above, it is more likely that you will also need to comply with the requirements, either from the school or the country. Often international insurance plans, like our Student Secure plan, offer a visa letter with your purchase, but in case your consulate or school requires a different document it’s good to know what the insurance company offers. Not having the necessary documentation on time could delay the processing of your visa or prevent you from registering for classes.

Check how long you can have the plan

Generally, plans made specifically for international students can be renewed for up to 4 years, but some plans like our Student Health Advantage plan can be maintained for up to 5 years. If you’re in a study abroad program for less than a year, a travel plan would give you traditional medical benefits, like doctor visits, in addition to benefits like emergency medical evacuation. One of these plans is the Atlas Travel plan, with prices as low as $0.79 a day.

Check your cancellation policy

Life can be unpredictable. Your school may not approve your alternate insurance plan, your visa may be denied, or you may have to return home unexpectedly for a family emergency. In the event that you no longer need your insurance plan, it’s important to understand the cancellation terms so you know if you’re eligible to receive a refund and stop future payments. Normally if you cancel your plan before the effective date you will be issued a full refund, but after this day cancellation fees may apply.

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Finance

Saving Money For Children And Grandchildren Makes Sense

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When it comes to saving for the education of the children or grandchildren, different products come into question, depending on the investment period, the desired flexibility and risk tolerance. With us you can read whether products are actually suitable for this and what advantages and disadvantages they have.

Setting the course

Before doing business, the first question you can ask yourself is why would you want the next generation to spend money? Did the grandparents give any money, should an inheritance be invested or do you just want to start with a savings plan to put something aside – as a start-up aid after finishing school and training? Depending on the occasion, goal and your expectations of the return on investment, there are various options.

  • Save for the next bike or a bigger gift in a few years

If you need the money in just a few years and don’t want to take any risks, not even for higher returns, then stick with a simple savings account or fixed-term deposit account.

  • Invest money for a few years, for example for the education of the children

If you are not dependent on the money for a longer period of time, then slightly higher returns are possible. First, banks pay higher interest rates the longer you invest the money. Take a look at the difference between a three-month fixed deposit and a ten-year savings bond. The savings bond is just as secure.

Important : Fixed is fixed, there is usually nothing to be done before the end of the term. In addition, for a longer period of time you may be able to invest the money with a little more risk, for example through an investment in the stock market, because you have time to sit out a bad phase. You can find out how to do this below. By the way, instead of an intangible financial product, you can also pay your children or grandchildren for music lessons or the club fee for sports, to name just a few alternatives. Investing in children’s education can also be an option that, in the long run, may benefit the child even more than an abstract investment.

WHAT “CONSULTANTS” LIKE TO SELL

The marketing of the financial institutions has long recognized the young target group – for customer loyalty but also as a lucrative source of income. Products have been specially created that are specifically offered to parents, but also to grandparents.

  • Education insurance, child policy, child provision

If you expect this insurance to cover your child’s education, then you are wrong. Because unlike your house or your household effects, you cannot insure your training against risks. Policyholder and contributor is usually a parent or grandparent. The service is due at the end of the contract. In most cases, this is based on the beginning of vocational training or studies. If the parent or grandparent dies before all contributions have been paid, the full benefit will still be due. In essence, there are several benefits: protection against the financial consequences of the death of the parents or grandparents, and an investment for the child. For many products, additional risks such as accident or disability are insured to a certain extent. Each insurance service costs extra.

We advise against combining different services in this way. If you want to cover the risk of death or accident, then you can. Think about what service you need and inquire about your own insurance for this purpose. The insurance cover for these products is not a perfect fit; it often does not cover possible risks as required. In addition, a price-performance comparison for the individual components is not possible and the product is not flexible. For example, it is not so easy to have the credit before the end of the contract or to suspend saving for a long time. And if this does work, then it is often associated with financial losses. To make matters worse, high acquisition and administration costs also consume the return on these contracts.

  • Pension insurance, generation policies

When it comes to old-age provision, intermediaries like to sell long-term pension and life insurance policies or so-called generation policies. The marketing departments of the insurers have come up with different names for these products. There is a simple reason why these products are popularly sold: The commission is calculated from the sum of the payments over the agreed term. The longer the term, the higher the commission for the agent and the less money is actually invested, especially in the first few years of savings. Retirement provision is primarily wealth accumulation, and there are other products such as ETF savings plans and bank savings plans (see below) that are much cheaper to get.

  • Home loan and savings contracts

New home loan savings contracts are currently not a profitable investment. The credit interest rate is only slightly above zero percent and if you subtract all costs from the interest, it no longer pays off as a savings contract.

Home loan and savings contracts are often sold because the brokers receive a commission for them, the so-called acquisition fee. This is usually one percent of the home loan and savings amount, and there are also annual fees.

  • Time deposit plus mutual funds

Some financial institutions offer higher interest rates for a limited period as part of promotional weeks if you also invest money in mutual funds. But be careful: you basically pay the higher interest out of pocket because you have to pay a front-end load to buy the mutual fund. This is the commission that the bank receives from the fund company. In addition, the bank will continue to receive commissions in the future based on the amount you have invested in the mutual fund. This is the sales follow-up commission, also known legally as “donation”. The excess interest is usually over after three months, whilst the new expenditures in the portfolio, at the detriment of the revenue, continue to have an impact for a long period.

This is how you can save with simple products

Children can learn how to handle money if they understand how to save. Savings books or overnight money accounts are particularly suitable for this. Both are straightforward and pose no risk. With the help of the savings account, the child can see at any time how much money he has already brought to the bank.

  • Savings books, overnight money and time deposit accounts

Some banks offer slightly higher interest rates for child accounts as part of limited investment amounts. With direct banks that do not have branch sales, even higher interest rates are possible here and there. If the child should also experience saving themselves, then a local institute is probably the first choice. After all, they also invest a lot in their marketing budget for the young target group by luring them to World Savings Day every year with promotional gifts. It’s not entirely selfless, of course, so watch out for the next local advertising campaign. After all, the bank makes a living from selling its products for fees and commissions and from issuing loans.

  • Bank savings plans

A bank savings plan is basically a savings account that you deposit into on a regular basis. In the current low interest rates, the range of bank savings plans is very manageable. However, some financial institutions still offer these products specifically for minors (e.g. as educational savings). You should pay attention to the contractual characteristics in doing so: under what circumstances is there an additional interest rate or even a bonus interest rate that depends on the term? Does the credit interest decrease if a certain investment amount is exceeded?

Can the rate be changed or suspended? Is an early (partial) termination possible or only with lower interest rates? Here, too, the money is safe, but the earnings opportunities are very limited.

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Finance

Car Financing: Everything You Need To Know

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Does the arrival of spring make you want to buy a new vehicle? The process of buying a car is rarely done without financing. Do you find the field of car loans complex? To help you understand the basics of financing at a car dealership and get your bearings, here’s some information. Already ready for a purchase, apply now!

Credit rating: the basis of your loan
The first step is to validate your credit rating. This is the basis for all loans. The higher your “score”, the easier it will be to get a loan for your future car. What is it based on? If you are a good payer (e.g., cell phone payments, credit card payments, etc.), your score will remain at a good level. As a general rule, if you have access to credit and your payments have been made on time, you will find it fairly easy to obtain the financing you need for your purchase.

  1. I have never obtained credit
    If you have never applied for financing, there are several ways to access credit, the two most common being

Option 1: Use a co-applicant (endorser)

The dealer will check the credit rating of your co-applicant. To endorse you, he or she will need to:

Have a good credit history ;
commit to guarantee the loan in case of default;
In addition, you should know that the endorsed loan will appear on your credit report as well as theirs.

Option 2: Join the First Time Buyer Program (when available)

This program allows you to obtain financing, provided you meet certain criteria (which vary from one manufacturer to another).

For example, the applicant may have to :

Provide proof of employment for at least 3 months and proof of income;
deposit an amount of cash;
respect a maximum amount to borrow for a first loan.

Did you know that? Applying for credit several times in a short period of time can hurt your credit rating. For example, applying for a car loan, furniture, a house, credit cards in too many applications in a short period of time can make future creditors more cautious.

  1. I’ve had trouble with my credit rating in the past
    Have you borrowed in the past, but were unable to meet your payment obligations? It is still possible for you to obtain a loan through your dealer’s second and third chance credit. Of course, a variety of different criteria must be met, depending on the financial institution. For example, obtaining the loan could be conditional on the signature of a co-applicant or a considerable down payment to demonstrate your commitment. Did you know that? A second or third chance credit loan can help you gradually rebuild your credit rating. Financing a vehicle, considered a long-term loan, will show creditors your good will to respect your commitments. However, you must be rigorous and maintain your payments until the end of the loan!
  2. Interest rates: what are the differences?
    There are 2 types of rates, usually associated respectively with the purchase of a new car and a used car.

Preferred rates

Usually reserved for new vehicles, most manufacturers’ rates are between 0% and 3.99%. The interest rate offered at the time of your purchase will be set by the manufacturer depending on the model of vehicle chosen and the term. It will be approximately the same across Canada.

Standard rates

Usually reserved for used vehicles, they vary between 3.69% and 9.99%.

Three main criteria usually determine the standard rates, which can be fixed or variable depending on the financial institution:

The year of the vehicle: from a certain year, fixed by the financial institution, the rate could be increased.
The total amount to be financed: for example, certain interest rates are only available for amounts financed of $7,500 or more.
The term: sometimes a rate increase may be necessary if the term is longer than a certain number of months.

Obtaining the loan at the dealership
Financing is always available at the dealership. It allows you to :

be accompanied in case of problems with the loan;
centralize the entire purchasing process in one place;
add loan insurance to your financing or lease that protects you in the event of death, accident, illness or critical illness.
Did you know that? When it comes to financing, it’s the finance managers of the dealerships you’ll meet. They are professionals supervised by the Autorité des marchés financiers (AMF) who are subject to several rules and practices that are frequently verified.

  1. How are repayment terms and payments set?
    To establish a term that suits you, you will have to rely on your personal budget and the management of your finances. If your credit rating is good, it will be up to you to set the amount you can pay per year and determine the payment terms. Choosing a payment frequency, weekly, biweekly or monthly, will not make a big difference on the interest paid in the end.

You can then think about the term: that is, how many months you would like to pay off your loan. Sometimes you may want to pay off your payment over a longer period of time to get the vehicle model you want with the monthly payment you originally set. Consider also the possibility of giving a cash amount, or leaving your vehicle in exchange, to adapt your monthly payment to your initial budget. In the case where the dealer takes back your vehicle in exchange, this allows for tax savings. An advisor on site will be able to offer you several options in order to obtain the monthly payment that suits your budget.

Did you know that ? Not all financing terms (weekly, bi-weekly, semi-monthly and monthly) are offered at all financial institutions. It is therefore necessary to make arrangements in advance and to validate the options offered at the dealership in question.

  1. What happens if I want to sell my vehicle before it is fully paid off?
    If you wish to sell your vehicle, there are several options available to you, the two most common of which are

Option 1: Leave the vehicle in trade-in at the dealership when you purchase or lease a new vehicle.

If there is still a lien (i.e. there is still an active balance on the loan) on the trade-in vehicle, the dealer will send a check directly to the original financial institution.

Did you know that? Although the dealer often gives you less than market value since your vehicle is dedicated to resale, you may save taxes on your purchase. For example, if your new vehicle costs $40,000 and the dealer gives you $10,000 for your old vehicle, you will only pay sales tax on $30,000. Plus, it’s a good option if you don’t want to deal with the headache of selling to a private party!
Option 2: Selling to a private individual

When selling to a private individual, you must ensure that you have repaid your loan in full. There are several rules governing the sale to a private individual, particularly with regard to the QST. Ask the SAAQ in advance to avoid unpleasant surprises.

Did you know that? A buyer could (and should) ask you for proof that the vehicle is duty free, i.e. that the debt is fully paid at the time of purchase. He may ask you for an official document from the Register of Personal and Movable Real Rights (RPMRR). You will have to pay $9 and enter your serial number to obtain it.

What you need to remember when buying a vehicle from a dealer
Buying a vehicle at a dealership means talking to an advisor who can guide you. Do not hesitate to clearly express your needs and your budget from the start. By having this basic information, they will be better equipped to help you buy the vehicle that meets your needs and budget. It’s their job to help you feel good about your purchase! Ready to get financing for the vehicle you want? Apply today!

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