I was just taking a look at a couple of properties in Zillow and found it interesting how big the real estate tax bite can be. I have 2 rental properties and the real estate tax cost is 15% and 12% of the rental income. At least for my area Zillow underestimate rent rates (the vacancy rate is very low and properties in general rent within days or weeks – at rates 10%+ higher than Zillow estimates on average -based on my very limited sample of just what I happen to notice).
I thought I would look at the real estate tax to property value estimate and rent estimate by Zillow in Various locations.
Arlington, Virginia – real estate taxes were 1% of estimated property value and 17.5% of rental estimate.
Chapel Hill, North Carolina – 1.5% of value and 41% of rental estimate.
Madison, Wisconsin – 2.4% of value and 39% of rental estimate.
Flagstaff, Arizona – .7% of value and 9.5% of rental estimate.
Grand Junction, Colorado – .4% of value and 6% of rental estimate.
This is just an anecdotal look, I didn’t try to get a basket of homes in each market I just looked at about 1-5 homes so there is plenty of room for misleading information. But this is just a quick look and was interesting to me so I thought I would share it. While the taxes are deductible (from the profit of the rental property) they are a fixed expense, whether the house is rented or not that expense must be paid.
A high tax rate to rental rate is a cash flow risk – you have to make that payment no matter what.
In my opinion one of the most important aspects of rental property is keeping the units rented. The vacancy rate for similar properties is an extremely important piece of data. Arlington, Virginia has an extremely low vacancy rate. I am not sure about the other locations.
I wanted to use Park Slope, Brooklyn, NYC but the data was confusing/limited… so I skipped it; the taxes seemed super low.
USA health care spending continues to grow, consuming an ever increasing share of the economic production of the USA. USA health care spending is twice that of other rich countries for worse health care results.
- USA health care expenditures grew 3.9% to $2.7 trillion in 2011, or $8,680 per person, and accounted for 17.9% of Gross Domestic Product (GDP).
- Medicare spending grew 6.2% to $554.3 billion in 2011, to 21% of total health care spending.
- Medicaid spending grew 2.5% to $407.7 billion in 2011, or 15% of total health care spending.
- Private health insurance spending grew 3.8% to $896.3 billion in 2011, or 33 percent of total health care expenditures.
- Out of pocket spending grew 2.8% to $307.7 billion in 2011, or 11 percent of total health care spending.
- Hospital expenditures grew 4.3% to $850.6 billion in 2011.
- Physician and clinical services expenditures grew 4.3% to $541.4 billion in 2011.
- Prescription drug spending increased 2.9% to $263.0 billion in 2011.
- Per person personal health care spending for the 65 and older population was $14,797 in 2004, 5.6 times higher than spending per child ($2,650) and 3.3 times spending per working-age person ($4,511).
Individuals (28%) and the federal government (28%) accounted for the largest share of those paying for health care in the USA. Businesses pay 21% of the costs of health care while state and local governments pay 17%.
The United States Centers for Medicare & Medicaid Services (CMS) project that health care spending will rise to 19.6% of GDP by 2021. Since the long term failure of the USA health care system has resulted in costs increasing faster than inflation every year for decades, it seems reasonable to expect that trend to continue. The burden on the USA grows more and more harmful to the USA each year these rising costs continue.
In 2004, the elderly (65 years old and older) accounted for 12% of the population, and accounted for 34% of spending.
Data from US CMS (sadly the way they provide the data online my guess is this url will fail to work in a year, as they post the updated data – I don’t see a way to provide a link to a url with persistent data).
Half of the population spends little or nothing on health care, while 5% of the population spends almost half of the total amount (The High Concentration of U.S. Health Care Expenditures: Research in Action).
Related: USA Spends Record $2.5 Trillion, $8,086 per person 17.6% of GDP on Health Care in 2009 – USA Spent $2.2 Trillion, 16.2% of GDP, on Health Care in 2007 – USA Health Care Costs reach 15.3% of GDP – the highest percentage ever (2005) – Systemic Health Care Failure: Small Business Coverage
Across the globe, saving for retirement is a challenge. Longer lives and expensive health care create challenge to our natures (saving for far away needs is not easy for most of us to do – we are like the grasshopper not the ants, we play in the summer instead of saving). This varies across the globe, in Japan and China they save far more than in the USA for example.
The United States of America ranks 19th worldwide in the retirement security of its citizens, according to a new Natixis Global Retirement Index. The findings suggest that Americans will need to pick up a bigger share of their retirement costs – especially as the number of retirees grows and the government’s ability to
support them fades. The gauges how well retired citizens live in 150 nations, based on measures of health, material well-being, finances and other factors.
Top Countries for Retirees
- 1 – Norway
- 2 – Switzerland
- 3 – Luxembourg
- 6 – Finland
- 9 – Germany
- 10 – France
- 11 – Australia
- 13 – Canada
- 15 – Japan
- 19 – USA
- 20 – United Kingdom
Western European nations – backed by robust health care and retiree social programs – dominate the top of the rankings, taking the first 10 spots, including Sweden, Austria, Netherlands and Denmark. The USA finished ahead of the United Kingdom, but trailed the Czech Republic and Slovakia.
Globally, the number of people aged 65 or older is on track to triple by 2050. By that time, the ratio of the working-age population to those over 65 in the USA is expected to drop from 5-to-1 to 2.8-to-1. The USA actually does much better demographically (not aging as quickly) as other rich countries mainly due to immigration. Slowing immigration going forward would make this problem worse (and does now for countries like Japan that have very restrictive immigration policies).
The economic downturn has taken a major toll on retirement savings. According to a recent report by the U.S. Senate Committee on Health, Education, Labor and Pensions, the country is facing a retirement savings deficit of $6.6 trillion, or nearly $57,000 per household. As a result, 53% of American workers 30 and older are on a path that will leave them unprepared for retirement, up significantly from 38% in 2011.
On another blog I recently wrote about another study looking at the Best Countries to Retirement Too: Ecuador, Panama, Malaysia. The study in the case was looking not at the overall state of retirees that worked in the country (as the study discussed in this post did) but instead where expat retirees find good options (which stretch limited retirement savings along with other benefits to retirees).
See the full press release.
Related: Top Stock Market Capitalization by Country from 1990 to 2010 – Easiest Countries in Which to Operate a Businesses: Singapore, Hong Kong, New Zealand, USA – Largest Nuclear Power Generation Countries from 1985-2010 – Leading countries for Economic Freedom: Hong Kong, Singapore, New Zealand, Switzerland – Countries with the Top Manufacturing Production
Determining exactly what needs to be saved for retirement is tricky. Basically it is something that needs to be adjusted based on how things go (savings accumulated, saving rate, planned retirement date, investing returns, predicted investing returns, government policy, tax rates, etc.). The simple idea is start by saving 15% of salary by the time you are 30. Then adjust over time. If you start earlier maybe you can get by with 12%…
How Much to Save for Retirement is a very good report by the Boston College center for retirement research. They look at the percent of income replacement social security (for those in the USA) provides. This amount varies greatly depending on your income and retirement (date you start drawing social security payments).
Low earners ($20,000) that retire at 65 have 49% of income replaced by social security. Waiting only 2 years, to 67, the replacement amount increases to 55%. For medium earners ($50,000) 36% and 41% of income is replaced. And for high earners ($90,000) 30% an 34%.
Starting savings early make a huge difference. Starting retirement savings at age 25 requires about 1/3 the percentage of income be saved as starting at 45. So you can save for example 7% from age 25 to 70 or 18% from age 45 to 70. Retiring at 62 versus 70 also carries a cost of about 3 times as great savings required each year. So retiring at 62 would require an impossible 65% if you didn’t start saving until 45. But these numbers are affected by many things (the higher your income the less social security helps so the higher percentages you need to save and many other factors play a role).
Starting to save early is a huge key. Delaying retirement makes a big difference but it is not nearly as much in your control. You can plan on doing that but need to understand that you cannot assume you will get to set the date (either because finding a job you can do and pays what you wish is not easy or you are not healthy enough to work full time).
If you don’t have social security (those outside the USA – some countries have their versions but some don’t offer anything) you need to save more. A good strategy is to start saving for retirement in your twenties. As you get raises increase your percentage. So if you started at 6% (maybe 4% from you and a 2% match, but in any event 6% total) each time you get a raise increase your percentage 100 basis points (1 percentage point).
If you started at 27 at 6% and got a raise each year for 9 years you would then be at 15% by age 36. Then you could start looking at how you were going and make some guesstimates about the future. Maybe you could stabilize at 15% or maybe you could keep increasing the amount. If you can save more early (start at 8% or increase by 150 or 200% basis points a year) that is even better. Building up savings early provides a cushion for coping with negative shocks (being unemployed for a year, losing your job and having to take a new job earning 25% less, very bad decade of investing returns, etc.).
Investing wisely makes a big difference also. The key for retirement savings is safety first, especially as you move closer to retirement. But you need to think of investment safety as an overall portfolio. The safest portfolio is well balanced not a portfolio consisting of just an investment people think of as safe by itself.
Related: Retirement Planning, Investing Asset Considerations – Saving for Retirement Must Be a Personal Finance Priority – Investment Risk Matters Most as Part of a Portfolio, Rather than in Isolation
No, it is not time to sell Apple, if your portfolio is not already too heavily overweighted in Apple it would make sense to buy. There is about as much wrong with Apple today as Toyota 3 years ago, which means essentially nothing is wrong. Yes, neither company is perfect. Maybe people were carried away with how awesome Apple was, but I don’t think the stock price every was.
Apple was a great buy at $700. Of course in the same situation buying it at $500 would be even better. I think it is a great buy at $500 today. I think Apple is going to move ahead just as Toyota has the last few years. The people jumping around at every single rumor of a data point are going beyond reacting to each data point they are reacting to rumors of data points.
I could be wrong. If Apple’s earnings cave over the next 5 years people can claim they say early signals. After a long time watching investors react to data and rumors and speculation I think they are just being foolish. Even if Apple is deteriorating, there needs to be a much better explanation for why investors should believe that than I have seen.
The best reason to question Apple is how long of a run they are on. Figuring the “law” of convergence in mean should make investors wary. That isn’t really true but that idea – that you just don’t stay on such a run (especially when you are huge and the have the largest market capitalization in the world).
But that is more just saying Toyota can’t keep being awesome. There is some sense that most likely they will stumble. But the problem is it is more likely about every other company will stumble first. The winners keep winning more than they start failing. But they also do often start failing. 100 years from now there is a decent chance Apple doesn’t exist. But there is a greater change most of the other companies you can invest in won’t. And there is a greater chance most other investments will do worse than Apple. That is my guess. Other investors get to place their money where there mouth is and we will see in 5 and 10 years how things stand.
I’ll stick with Apple and Toyota and Google and Danaher and Intel and….
Building your saving is largely about not very sexy actions. The point where most people fail is just not saving. It isn’t really about learning some tricky secret.
You can find yourself with pile of money without saving; if you win the lottery or inherit a few million from your rich relative via some tax dodge scheme like generation skipping trusts or charitable remainder trusts.
But the rest of us just have to do a pretty simple thing: save money. Then, keep saving money and invest that money sensibly. The key is saving money. The next key is not taking foolish risks. Getting fantastic returns is exciting but is not likely and the focus should be on lowering risk until you have enough savings to take risks with a portion of the portfolio.
My favorite tips along these lines are:
- spend less than you make
- save some of every raise you get
- save 10-15% of income for retirement
- add to any retirement account with employer matching (where say they add $500 for every $1,000 you put into your 401(k)
Spending less than you make and building up your long term savings puts you in the strongest personal finance position. These things matter much more than making a huge salary or getting fantastic investing returns some year. Avoiding risky investments is wise, and sure making great returns helps a great deal, but really just saving and investing in a boring manner puts you in great shape in the long run. Many of those making huge salaries are in atrocious personal financial shape.
Another way you can boost savings is to do so when you pay off a monthly bill. So when I paid off my car loan I just kept saving the old payment. Then I was able to buy my new car with the cash I saved in advance when I was ready for a new car.
As I have said, the behavior (driven by the poor ethical standards of the “leaders” of our financial institution) of our financial institutions means, as a a customer, you have to be on guard for their tactics to trick you out of your money. Essentially you have to expect them to behave like a pickpockets and be on guard against them at all times. This is an extremely sad state of affairs: that the ethical failings of such critically important players in our economy are so widespread, long-lasting and accepted. However, as we have seen, they profit from this behavior and their long track record of such behavior provides evidence they will continue acting in this way.
The Consumer Financial Protection Bureau and Federal Deposit Insurance Corp. found that Discover Financial Services telemarketers often talked faster when explaining fees and terms as they pitched the services, leading customers to think there was no additional fee, the regulators said Monday.
It is very good to see the Consumer Financial Protection Bureau taking action to protect the consumers from the financial institutions continued efforts to evade the law and take a little bit from millions of consumers. This type of behavior has been tolerated previously, and should never have been. The financial institutions strategy to take small amounts from millions of people was a wise way of dealing with the tendency of law enforcement to ignore such “small infractions” – they didn’t seem to bother seeing that taking small amounts from millions of people results in hundreds of millions of dollars in ill gotten gains.
Far too much of the bad practices are continuing. And when they are caught the consequences are far too small (which is why they keep behaving unethically). Discover is only being charged $14 million in civil penalties for their lapses (and has to return $200 million it took unfairly).
It is good to have police to try and catch literal pickpockets. And it is good to have the Consumer Financial Protection Bureau to catch financial institutions that take far more than pickpockets can dream of away from the wallets of consumers.
Related: Capital One Bank Agrees to Refund $150 Million to 2 Million Customers and Pay $60 Million in Fines – Very Bad Customer Service from Discover Card – Credit Card Regulation Has Reduced Abuse By Banks – Continued Credit Card Company Customer Dis-Service – I Strongly Support the Consumer Financial Protection Bureau
The USA economy is still in very fragile ground. The continued problems created by policies focused on aiding too big too fail institutions and continued huge federal budge deficits are dangerous. And the continued problems in Europe and mounting problems in China are not helping. Still, rental prices continue to rise across the USA.
The graph above shows housing rents (as shown by the Zillow rent index) have increased 5.4% in the last year (through July) across the USA. In Boston the increase was 4.5%; Grand Junction, Colorado -4.9%; San Francisco up 8.8%; Washington DC up 7.3%; Raleigh, NC up 1.8% (though the last one couldn’t be added to the graph for some reason). I just picked some cities I found interesting – with some diversity.
Housing prices are up 1.2% in the same period, according to the Zillow price index.
When looking at data on rental prices and home prices you will notice different sources give different readings. Judging these changes across the nation is very difficult and requires making judgements. Even at the local level the measures are imprecise so the figures you see will vary. Taking a look at several different measures, from reputable sources, is often wise.
Related: USA Apartment Market in 2011 – Top USA Markets for Buying Rental Property – Apartment Vacancies Fall to Lowest in 3 Years in the USA (April 2011) – Apartment Rents Rise, Slightly, for First Time in 5 Quarters (April 2010)
Big Income Losses for Those Near Retirement takes a look at some interesting data, including data on median income drops due to the too-big-too-fail credit crisis recession.
The post also includes data showing the only groups with income increases as those 65-74 years old and, 75 and over which is surprising. 25-34 took the 2nd largest drop decreasing 8.9%.
Another interesting tidbit is the percent of people over 65 with jobs. In 1960 20% of those over 65 had jobs. Which pretty much decreased steadily to 10% in 1986 and then has increased steadily to 17% in 2011.
Related: USA Individual Earnings Levels: Top 1% $343,000, 5% $154,000, 10% $112,000, 25% $66,000 –
Looking at Data on the Value of Different College Degrees – 60% of Workers in the USA Have Less Than $25,000 in Retirement Savings – Credit Card Regulation Has Reduced Abuse By Banks
I’m really too lazy for any ongoing budgeting. This is the model I have used: write down your big expense (rent, car payment, required student loan payment…). Get the total take home pay each month subtract your big expenses. If that is negative you better do something else (make more money, get rid of big expenses).
Big monthly expenses:
- Rent: $900
- Car payment + insurance: $300
- Cash (miscellaneous spending food, gas, cloths, books…): $450
- Utilities+ (heat, electricity, phone, internet…): $250
Take home pay: $2,800.
That leaves $900/month ($2,800 – $1,900). Decide how to allocate that – toward your IRA, saving to buy a house or take a vacation, eating out (above what was allocated above for cash), pay off debt (if you have it…), build up an emergency fund, save to buy a new MacBook Pro with Retina display…
If I decided to allocate $300 to my IRA (or increase my 401k) I would just set that up automatically each month. Then say I decided to put $400 toward other savings I would have that go to my savings account each month. And I decided I could use the $200 to pamper myself I just leave that in my checking account and what is in checking is what I have to spend.
I just don’t spend more than that. Just like when I was in college I had little spending money. I could spend that. I couldn’t spend any more, I didn’t have it. If I were to go over (I never did), but if I were to have (say my credit card bill exceeded my checking account balance), I would have had to reduce my cash the next month. I reality I would have something like $2,000 extra in the checking account so no bills would be a problem (and just view $2,000 as 0).
In 6 months see where things stand. Is it really working? Did you mess up and forget some expenses… If you need to adjust, do so. Re-examine every 6 months (or every year, if you are doing pretty well).
Take a portion of each raise (50% maybe) and devote it to personal finance goals (paying off debt, retirement savings, building up emergency fund, saving for big purcahse, investing, give more to charity…); don’t just use it to increase spending. Use no more than half (or whatever level you set) of the raise to increase your current spending.