Inflation Wage Gap

“Inflation” might be a word you’ve heard floating around when people complain about the price of items or the state of wages, and especially income inequality, but what exactly is it? In short, inflation is the necessary cost of an expanding economy. The Federal Reserve, which has the power to change the national interest rate, keeps rates low to stimulate spending. This drives demand and ultimately, economic growth.

For instance, the dollar has lost a lot of value in the past 100 years, which was caused by inflation. In 1915, a person with $4.26 could buy the same amount of food, clothing, and other necessities as $100 would buy today.

The Federal Reserve targets a 2% core inflation rate, meaning that as long as prices (excluding volatile food and energy) only rise 2% a year, the economy is expected to grow at a healthy rate. In the U.S., the annual inflation rate is 0.1%. Unfortunately, not everyone’s income increases more than 2% a year along with interest rates. This is one source of income inequality.

Over the past few years, however, Income inequality has been on a steady rise. From 2000 to 2006, average wages remained flat despite an increase in worker productivity of 15%. In those six years, corporate profits increased 13% per year. And that was before the recession, which exacerbated economic inequality in general, delivered a devastating blow to the U.S. economy.

Indeed, this massive gap in earnings is one of the major issues addressed by social justice workers, the media, and politicians. It is often met with public outrage, especially after the 2008 recession. The Pew Research Center reports that approximately 61% of Americans say that the U.S. economic system favors the wealthy, while just 35% said that it’s fair to most people. A similar share (66%) of Americans said the gap between rich and poor had increased in the past five years, and near three-quarters of respondents said the rich-poor gap was either a “very big” (47%) or “moderately big” (27%) problem.

Perceptions of income inequality also vary by class, with 54% of low-income people and 49% of middle-income people calling the rich-poor gap a “very big” problem. Only 36% of high-income people agreed. A third of the high income group said the rich-poor gap was either a small problem (19%) or not a problem at all (14%).

Rising interest rates and stagnant wages drive many people into debt cycles and eventually into worsened states of poverty. There is some government aid, and people can file for bankruptcy should they become unable to manage their debt. Some people, if they already receive them, even sell their structured payments. Selling off an annuity can cost surrender charges of up to 10%, but it can help some people get the cash they need to help get ahead of the challenges posed by inflation.

selling off an annuity

What Are the Advantages and Disadvantages of Structured Settlements?

cash for a structured settlement

A structured settlement is a type of arrangement that might result from a court case involving a settlement for a large sum of money — the defendant or person proposing the settlement might offer to set up an installment payment plan, as opposed to one lump sum.

Structured settlements can be set up with basically any schedule that both parties agree upon, but sometimes, it is more profitable for the recipient to get cash for a structured settlement by selling to a third party. Different situations will call for different management of a structured settlement — check out their advantages and disadvantages to decide for yourself.

Advantages
One of the main reasons many people choose to arrange structured settlements is because of tax benefits. Tax obligations may be reduced, or in some cases, entirely eliminated. There are several other benefits to this system: for instance, the added security of receiving smaller amounts of cash at regular intervals is very appealing to some people. It essentially acts as a steady flow of extra income. This is especially appealing to people who have trouble managing their money, and would spend the entire lump sum immediately.

Minors receiving these types of structured payments can benefit from this type of payment as it can help them pay for school expenses, or be put away in a savings account for the future.

Disadvantages
One of the biggest disadvantages of this system is that once the payment terms have been agreed upon, they cannot be changed. And, since the interest is already built into the payment, interest cannot be earned on the funds. The funds cannot be used as collateral for a loan, although it can be declared as income which could help when applying for certain loans.

Some people with more immediate needs, like the need for ways to reduce debt (26% of Americans admit to not paying their bills on time), or buying a house (which cost an average of $272,900 in 2010), might want to sell structured settlement payments for a lump sum at some point during the life of their payments. After all, emergencies happen — overdue medical bills hurt 20% of credit reports. Getting cash for a structured settlement can sometimes be the windfall you need.

Annuities 101: What They Are For and How to Use Them

purpose of an annuity

New to your annuity? Here’s what you should know!

What Is An Annuity?
An annuity is a promise made by one party to make a series of payments to another party for a given period. Basically, it’s a contract between you and an insurance company. First, you buy an annuity, sometimes in a lump sum, and sometimes by making payments over time. That insurance company then invests your money. Some annuities, called “immediate annuities,” start making payments to you immediately, while another are available after a delay, which will grow your investment. This is called a deferred annuity, and it’s particularly popular. At the end of 2013, there were also 34.8 million individual deferred annuity contracts in place exceeding $2.58 trillion.

What Is Their Purposes?
The purpose of an annuity, which was created by life insurance companies originally, is to help pay for things like disability and long-term care — essentially, its purpose is to generate income for you. Payments can last for a couple of years, or even for your whole life. This supplemental income could seriously help you meet monthly expenses, and reduce debt over time. Consider this: the average U.S household pays $950 in interest every year. Annuities are available in many different varied lengths and payout periods; two of the most common are payments over the course of 25 years or payments until death.

On the other hand, deferred annuities also have their perks. Before your income payments begin, you can take withdrawals from the contract.

How Can I Use Annuities for Retirement Planning?
Annuities are actually very commonly used for just this purpose! They have the handy power to convert a lump sum into structured settlements for the rest of your life, or to invest over time, and later convert the money into income payments. Growth in your annuity value is also normally not taxed until you take money out of your contract. The purpose of an annuity is to help invest your money for later when you might not be as financially stable as you are now! Letting your money grow up could be the best decision you ever made.

Why Might You Want to Sell a Portion of Your Annuity Payments?

sell a portion of your annuity

By the end of 2013, there were nearly 34.8 million individual deferred annuity contracts in place, exceeding a worth of $2.5 trillion. For some people, the structured way that these annuities are meted out helps them budget and plan for the future. Overall, American consumers owe $11.9 trillion in debt, so periodic supplementary payments for some is a welcome and much-needed addition to their income.

But things change, and for many, having all of their annuity money at once would be much more helpful in the long term. Check out these reasons why you might want to consider selling a portion of your annuity payments to assess your own situation:

  • Annuity payments can last for 10 years, or even be structured to mete out payments for your whole life. At first, it might seem like a good idea to receive these monthly payments. But unforeseen circumstances can arise. What if you are unexpectedly slammed with medical bills, student loans, or credit card debt? In these cases, it would be much more helpful to have cash now, and not future payments.
  • Changes in your long term investment or estate planning could make it so that small payments don’t make much sense. Perhaps you want to invest in real estate — the average cost of a new home was $272,900 in 2010, and using a lump sum for a down payment could get you started on home-owning. Sell a portion of your annuity payments and redistribute your money according to your new strategy, which should work best for you now.
  • If you have inherited annuity payments, but you’d rather have a lump sum, this is a prime time to consider selling your structured settlements. What was right for the person from whom you inherited from might not be right for you.

Cash for an annuity can be life changing, and one of the many ways to reduce debt. It is important that your settlement, inheritance, or lottery winnings are allowed to you in the right way that makes sense for your financial goals. Sell a portion of your annuity payments to make your financial goals come true.

6 Money Hacks to Make Life Easier

Nothing is easier than spending money — and it seems that, conversely, nothing is as hard as saving it. But the truth is that saving is extremely important, whether it be for an early retirement, your kids’ college tuitions, buying your own home, or for rainy days. Having extra funds can give you the freedom to pursue a career of your choice and live the life of your dreams. Here are a couple of quick tips for how to quietly and effortlessly accrue money:

Having an emergency fund (three to six months’ living expenses) can really save you if you find yourself unemployed and hard up for a job. It’s a great idea to create an out of sight, out of mind savings account so you aren’t tempted to dip into it. Bank accounts are definitely helpful tools when it comes to saving — many bank accounts, like Capital One 360, offer special tools to help you automate savings and keep track of your goals. Investigate the possibilities at your bank.

Another great idea, especially for those frugal fashionistas out there, is to create a free, web-based email account exclusively for frugal newsletters, in-store coupons, daily deals, and other special savings. If you spend 5 minutes everyday checking out the best offer in your inbox, whether it’s an online survey or a great coupon, you’re bound to run into some savings.

In some ways, saving is all about compartmentalizing, and not just in your bank account. Start saving your loose change from your pocket, your change purse, and your car tray, and compile it all in one place. Every month, count out the change you’ve accumulated and add it to your savings account.

Lastly, try to cut down on unnecessary expenses. A great way to figure out what can go is by logging into your credit card statement or other monthly bill and identifying at least one expense you can do without. Maybe you’ve forgotten about that monthly gym membership you meant to drop, or you have another large monthly expense you don’t need, but once you’ve spotted it, it’s time for it to go.

There is no doubt that you’ll need to make it a habit to save, but after a couple of months of practicing good money habits, you’ll surely be on your way to your goals.

money saving tips

How to Make the Most of Your Lottery Earnings

lottery paymentsYou’re living every person’s dream — you’ve won the lottery. Winning the lottery is certainly sensationalized by the media and pop culture, and your first instinct might be to quit your day job and buy your dream car right away. But, in order to make the best use of your sudden windfall, it is wisest to wait before you make any rash decisions.

You have before you a lot of choices to make. Do you want to receive your lottery payments in staggered payments, or all at once? Will you use it for paying off your debt, or will you go on vacation right away? And there are more questions down the line — if you choose to receive annuity payments, will you want to get cash for lottery winnings eventually?

It should be a comfort to know that many other people all across the country are exactly in your position — if they didn’t win the lottery, they received a structured settlement of some sort. In fact, at the end of 2013, there were 34.8 million individual deferred annuity contracts in place, with a collective value exceeding $2.58 trillion. Check out these tips for how to manage your money here:

Consider Your Options
If a spreadsheet is what it takes for you to do a serious cost-benefit analysis of your options when it comes to your lottery annuity, then do it. The most important thing is that you know what your choice means financially for the coming years. If you are completely lost, it might be worth it to hire a lawyer to protect against solicitors who might get you to use your money unwisely. Whatever you do — don’t quit your day job just yet. Leave big decisions until after you weigh the options.

Invest and Save
While you might have lots of cash from lottery payments now, it might not always be so later. Use this as an opportunity to squirrel away funds for a rainy day, your retirement, your children’s college, and other big, life expenses. Over 40% of American families spend more than they earn, and if you are one of them, this is your chance to break that cycle.

Surveys show that lottery play is the most popular and widely practiced form of gambling in the United States — and it’s amazing that, against all odds, you won! Don’t squander away this once in a lifetime opportunity by spending your money unwisely.

Easy Ways to Save Money and Get Out of Debt

 selling your annuity paymentsAmerican consumers are in debt — $11.91 trillion deep, in fact. The truth is that in our society — where material belongings are valued over experiences and lines of credit are as easy to get as candy on Halloween — falling into a debt hole seems almost unavoidable at times. Indeed, nearly one in five Americans aged 18-24 qualify themselves as being in “debt hardship.”Selling your annuity payments may seem tempting at times like these.

There are several ways one can try getting out of debt. Selling your annuity payments or getting cash for a structured settlement is one way. Bankruptcy is another — in February 2015, there was a daily average of 3,422 bankruptcy filings. But declaring bankruptcy or selling your annuity payments doesn’t need to be the only way.

Check out these easy ways to reduce debt, and get started on your new life:

  • Make a date with your money: This means blocking out one time every week when you sit down to update your budget, review your accounts, and track your progress against your goals. In order to see things improve financially, you need to have some alone time with your personal accounting, which will, in turn, hold you accountable.
  • Cut out cable: Seriously, it might seem unimaginable to you, but the cable bill really adds up. Instead, buy a subscription to Netflix, Hulu or Amazon Prime. With their many options, it’ll be hard to imagine you ever needed cable.
  • Make coffee at home: Even though a cup of organic, fair-trade, gourmet, locally roasted and brewed cuppa joe is one of the joys of this world, those $5 lattes are taking a sizable chunk out of your wallet. Even investing in some high-end beans will present significant savings over going out all the time.
  • Get creative with gifts. Time to get crafty! Or, if you’re not the DIY type, spending time, instead of money, can really be the best way to tell someone you love them. Plan out a special scavenger hunt, cook up a special meal, or take that person on a beautiful outdoor adventure. They probably wouldn’t even have used your expensive gift anyway!
  • Plan out your meals: By planning a week in advance, and cooking with everything you bought, you will save untold amounts of money and food since nothing will go to waste.

Most importantly — track your progress. It’s time to stop keeping up with the Kardashians, and start congratulating yourself on the progress you’ve made personally.