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9 Things to Know Before Retiring Abroad

Nick Wharton — Mon, 11 Sep 2017 08:30:05 +0000

For an increasing number of Americans, moving abroad to enjoy retirement is an enticing idea. There are lots of reasons that lead people to make this choice, including better weather, cheaper health care, and an increased standard of living at a lower cost. But it's not a decision to be taken lightly. There are a number of important considerations that retirees sometimes overlook. Here are nine things you must know before retiring abroad. (See also: 5 Countries Where You Can Retire for $1,000 a Month)

1. U.S. tax laws are still applicable

Some retirees are under the impression that if you skip the country, the IRS somehow magically stops requiring you to file your income taxes. However, regardless of where you decide to live in the world, if you remain a U.S. citizen, your worldwide income is subject to U.S. taxes. Failing to pay your taxes is a serious offense with sometimes dire consequences that aren't worth risking, and ignorance is not a mitigating factor. (See also: Don't Let These Expenses Spoil Your Retirement Abroad)

If you are a U.S. citizen or green card holder who lives outside of the U.S. for 330 days during any period of 12 consecutive months, you may be able to apply for the Foreign Earned Income Exclusion. This allows you to exclude from your taxable income a certain amount of income that you earn abroad. The exclusion amount changes each year as it adjusts for inflation. For 2017, the amount is $102,100.

So, if you live abroad for 330 or more days in 2017 and earn under $102,100, you may not have to pay taxes. This exemption is not automatic and you must apply for the exclusion. Check the IRS website for more details. Keep in mind that even if you don't owe any money, if you meet certain income and status requirements, you are still required to file a U.S. tax return every year.

In addition to U.S. taxes, you'll need to find out if you're subject to taxes in the country you move to. Check with local tax authorities to learn more. (See also: 5 Countries That Welcome American Retirees)

2. Medicare doesn't cover you outside the U.S.

The first thing to be aware of is that, except in rare instances, any medical expenses you incur when you're not in the United States cannot be paid for with Medicare. That said, it may still be worthwhile to sign up for Medicare Part A (hospital coverage) because it is free. If you plan to move back to the U.S. or make frequent trips back, it may also be worth paying the premium for Medicare Part B, which covers doctor visits and outpatient care. To determine whether this will be of benefit to you, you should thoroughly check the information provided on the Medicare website.

Keep in mind that health care is often much less expensive in other countries. Mexico, for example, is more than 50 percent cheaper for doctor visits, prescription drugs, and health insurance. (See also: How Almost Anyone Can Afford to Retire in Mexico)

3. Currency fluctuations may affect your bank balance

Even if your monthly income remains the same, the amount that this translates to in your local currency may go down. This is entirely dependent on the strength of the U.S. dollar at any given time, which could have a large impact on your finances, particularly if you're on a fixed income.

Remember, however, that this could also work in your favor if the dollar strengthens against your local currency, allowing you to purchase more of the local currency. Though you can't control currency fluctuations, you should have a contingency in place for if and when they do happen. (See also: Retire for Half the Cost in These 5 Countries)

4. You can probably get Social Security — and maybe more

You can still receive Social Security payments in most countries around the world but it's important to check the list of excluded countries before settling on a location. If you've lived and worked abroad for part of your career, you may also be able to combine retirement credits from the U.S. and another country where you worked, for a larger benefits payout. The other country must be among more than two dozen that has a reciprocal agreement with the U.S.

5. You need to put a plan in place for when you die

There are two main considerations for putting a plan in place for the event that you pass away while you're abroad. First, you should know that the U.S. State Department will not pay for the return of your remains or ashes. Second, different countries have different regulations around what happens to your assets.

You need to have funds in place if your wish is to have your remains repatriated to the U.S., as this can be a costly and time consuming process. You should make yourself familiar with local succession rules, as some countries won't automatically honor your wishes for assets that lie within them unless you have an eligible will.

6. You can probably still vote in the U.S.

Just because you no longer live in the U.S. doesn't mean you don't take an interest in the U.S. political situation. In the vast majority of circumstances you are still eligible to vote absentee in federal primary and general elections. In some states, you're even able to vote for state and local office candidates and referendums.

You will need to submit a new Federal Post Card Application each year in order to qualify, and you should do so at least 45 days before an election. But from there it's a simple process. You'll be able to submit your vote either by mail or electronically depending on where you're registered.

7. You might not like it

Unfortunately, the reality doesn't live up to the dream for some retirees relocating abroad. There are so many factors to consider that it's almost certain that issues will arise that you've not even thought about, from financial problems to culture shock.

It's best to try a place out for a while before taking the plunge and relocating your whole life. Even if it's a location you know well from having visited over the years, residing somewhere permanently is different from vacationing there. Just bear in mind that it may not work out as you hoped.

8. Relocation can be extremely expensive

When it comes to calculating just how much it's going to cost you to live in a foreign country, it's important to include relocation costs. Shipping possessions like furniture can be costly, but not transporting them may also be expensive if you have to buy new items when you arrive.

If you have pets there may be vaccinations and quarantine periods that you have to shell out for, as well as separate transport costs. In addition, your own visa application could be expensive and complicated depending on the location. Look out for those hidden costs.

9. Things will be different

It's stating the obvious, but no matter how familiar the country is that you're retiring to, things will be different from the U.S. Everything from the local customs, to what groceries you can get in the supermarket will be new.

You'll more than likely be away from close friends and family and there will probably be a sharp adjustment period. It's important not to underestimate the effects this could have on your happiness when making what will be one of the most significant decisions of your life.

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This article is from Nick Wharton of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Protect Yourself Financially During a Divorce or Separation

Samantha Stauf — Mon, 10 Jul 2017 08:30:11 +0000

Marriage is not always "till death do us part." Time, unforeseen events, individual decisions, and emotional disconnect can lead couples to make the hard decision to separate or divorce.

Divorce proceedings cost an average $10,000 to $15,000, according to GOBankingRates. That's due largely to lawyers' fees. It's vital that individuals minimize additional financial fallout. The last thing you need is another financial blow due to negligence, malice, or misunderstanding.

1. Research your state's divorce and separation laws

Divorce and legal separation laws in the United States are decided on a state level. That means the first step to financial security is finding out when you stop being liable for debts incurred by your spouse.

In Pennsylvania, for example, a debt and assets cut off date is known as the "Date of Separation." That date is either considered the day the divorce complaint is filed or the day that the decision is made to separate (either moving out of the house or into a separate bedroom). In other states like New Jersey, liability for your spouse's debt doesn't stop until the divorce is actually finalized.

Couples can also, depending on the state, opt for a legal separation. Legal separation is a lot like a divorce, but the couple remains married, which allows them to file taxes together and remain on their spouse's health insurance. It could be a solid stopgap if you're unsure if a divorce is the right answer.

2. Plan ahead

Individuals who are separated or divorced might want to begin to track and document all potential assets. That means taking pictures of evidence, hunting down legal documents, and familiarizing yourself with your joint and individual financial portfolios.

Spouses often utilize temporary separations as a means to collect evidence before officially filing for divorce. It might be best to assume your spouse is already considering what needs to be done to come out ahead if a divorce is imminent. If you don't divorce, you'll at least have a better sense of your financial footing.

If you suspect the divorce might get ugly, you should also consider keeping important documents in a safety deposit box and having important mail sent to a PO Box. This will cut the risk of anyone stealing or destroying important documents during divorce proceedings.

3. Immediately protect your credit and finances

Separation and divorce leave an individual's finances and credit score in jeopardy. An estranged party, who might or might not be feeling charitable, still has control over your financial health. Now might be the time to start separating yourself.

Here are a few tips to protect yourself:

Create new car insurance policies that aren't tied to the other party (this protects you from the financial fallout of potential accidents or tickets).
Ensure rental or homeowners insurance is in your name.
Shut down joint bank accounts.
Tell all lenders and companies that expect payments that you are going through separation or divorce proceedings. Give them updated contact information in case payments are late.
Check to see if any loans or credit card payments can be frozen until the divorce proceedings are finalized.
Ensure all loan, credit card, insurance, and utility payments under your name are paid, even if you agreed your spouse would pay that particular bill.
Once the division of assets has been agreed upon legally or verbally, you can begin closing the accounts by selling off assets, refinancing loans, removing one party from the loan, or switching credit card debt to a new card.
Request a credit report and look for accounts that need to be canceled or updated. You want to identify joint accounts or accounts where the other party is an authorized user. Credit reports are the easiest way to ensure you don't miss one.
Change all passwords to your accounts.

4. Negotiate support

Separation can be a long, arduous, and expensive task. Individuals in the middle of divorce or legal separation proceedings can appeal in the courts to be granted temporary relief also known as "pendente lite." The temporary support, if granted, could lead to the primary bread winner providing temporary alimony, child support, and household payments.

If the support isn't granted, you might be able to petition the courts to have the other party financially responsible for part or all of the debt incurred while separated.

Divorcing or separating parties can also negotiate whether alimony payments are tax deductible.

Tax deductible alimony payments grant the individual who pays the ability to deduct the payment from their taxes and ensures the individual who receives the payments must file the support as income. (Taxable alimony should not be tied to any children or the IRS might not consider it an alimony payment.)

In some cases, it might be better to make the payments nontax deductible. This is more common if one spouse is in a higher tax bracket.

Separation and divorce can be a financially perilous time. Don't forget, as you implement protective safeguards, to look into protecting your business from financial ruin as well.

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This article is from Samantha Stauf of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Weird Money Laws You May Have Broken

Joe Epstein — Fri, 20 Jun 2014 21:12:04 +0000

Money can make people do strange things. But what about when money laws themselves are beyond comprehension?

From bizarre tax systems at home to monarchy-imposed oddities abroad, the world is full of some very odd laws governing the spending and collecting of money. Lucky for you, this list of them is free.

1. Don't Step

Thailand's king is featured prominently on all the country's currency. Thailand's king is also not to be criticized, under legal penalty. So by extension, Thailand has one of the stranger money laws around: stepping on money is considered extremely disrespectful, and crazily enough, could land you in a Thai jail.

2. Do the Running Man, Pay the Tax Man

In Washington state, cover charges for movies, concerts, and theater are tax free. Unless, that is, the venue provides patrons with an "opportunity to dance" (seriously), in which case tax must be paid. A holdover law from the 60s, the provision was largely forgotten about until recently, when one establishment was charged $25,000 for non-compliance.

3. Candy Pain

Buy a Twizzler in Kentucky and you're free from paying taxes. Buy a chocolate-coated pretzel, and you better keep that receipt. That's because their state law declares tax exempt only those candies that don't contain flour. Seems a little half-baked.

4. Canadian Currency Conundrum

Find it annoying when the person in front of you in line starts counting out pennies for their purchase? Well in Canada, you could have that person arrested. According to the Canadian Currency Act, there are all sorts of legal restrictions on what you can and can't pay for with coins, including the illegality of using more than 25 pennies in any transaction.

5. Nay-Saying Sooth-Saying

For something weird you're not allowed to charge money for, how about Pennsylvania’s law against soliciting payment for fortune telling? The misdemeanor is punishable by up to a year in jail, and extends to outlaw charging to place hexes or spells on people.

6. The Bagel Burden

It's tough to walk down a New York City street without running into a bagel joint. But if you're looking to avoid being charged tax on one of those heavenly bread circles, make sure you do not, under any circumstances, ask for your bagel to be sliced. As soon as the bagel is sliced (or schmeared, for that matter!), it's considered prepared food, and can be taxed up to 9 cents.

7. Bavarian Bribes

While most of this list features legal restrictions, this last law gets honorable mention (it was eliminated just a few years ago) for helping facilitate a strange financial transaction. Namely: bribery. German tax law, it turns out, actually allowed private companies to write off the costs of bribery on their returns.

Though good luck dealing with the angry bribe recipients after listing their names on your receipts…

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This article is from Joe Epstein of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Are the new home appraisal rules good for consumers?

Xin Lu — Tue, 30 Jun 2009 21:34:33 +0000

On May 1st a new set of home appraisal rules called the Home Valuation Code of Conduct was put into effect by Fannie Mae and Freddie Mac in order to distance realtors and mortgage brokers from appraisers. This was put in place because during the housing bubble appraisal fraud was rampant and some appraisers felt pressured by realtors and brokers to hit the desired numbers. How is this affecting consumers?

The biggest change in the Code is that loan officers, mortgage brokers, or real estate agents can no longer have any role in choosing appraisers. The lender is responsible for choosing the appraiser and following the Code if they want to sell the mortgage to Fannie Mae or Freddie Mac. The lender could also accept an appraisal prepared for another lender if the other lender also followed the Code.

As a result of the new rule some lenders are outsourcing the selection of appraisers to appraisal management companies, and some say that this is increasing appraisal fees for consumers because these companies take a cut of an appraiser's fee. The appraiser has to increase his or her price accordingly to recoup the loss. Another critism is that these appraisal-management companies do not always choose local appraisers that know an area well. As a result some appraisals may be inaccurate.

Right now the National Association of Realtors does not like this rule very much and their chief economist Lawrence Yun said the following:"In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment." The NAR also sent legislators letters protesting this rule and it is also suggesting that regulators put an 18 months hold on the rule.

Bill Garber, the Director of Government and External Relations at the Appraisal Institute issued the following response to the NAR's complaints, "In a typical real estate transaction [such as a buyer seeking a loan], our clients are the lenders. Appraisers provide lenders with information that protects them from making questionable loans and investments and helps them minimize risk. However, that should not suggest a bias toward lower valuation. Appraisers reflect the market, and sometimes, the markets don.t act like we want them to or hope they will. Nonetheless, competent and professional appraisers understand this and develop credible estimates of value that ultimately ensure that lenders loan the proper amount, buyers don't pay too much and sellers get a fair price."

I think Bill Garber's response is right on the spot and lower appraisals are simply reflecting the market now. It is beneficial for consumers to get lower prices on homes, but I have also heard anecdotal stories of faulty appraisals where information such school districts and home size were wrong. It is very frustrating for home buyers and sellers when a low appraisal stops the loan process. If I were a home buyer in that situation I would probably check the appraisal report for errors first, because any factual errors can be reported to the lender. If the report seems to contain no errors then I would attempt to negotiate the price to be at the appraisal because I would not want to pay too much. I do not think that a low appraisal is the death of every single real estate transaction as long as everyone involved are willing to compromise.

In conclusion, I think it is a good thing if an honest and accurate appraisal shows you that you are willing paying too much for something. I think the new code does have some problems because it adds a layer of bureaucracy and pricing through appraisal management companies. However, this new process does remove a lot of bias in appraisals because it is a lot less likely that the appraiser chosen has a previous relationship with the real estate agent or mortgage broker involved in the deal. I am hoping that this reduces appraisal fraud by a great margin, and I think that is good for everyone involved in a real estate transaction.

What do you think of this new code? Have you faced difficulties in your real estate transactions lately due to appraisal issues?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What will be pulled off the shelves? The impact of the new Consumer Product Safety Improvement Act

Xin Lu — Fri, 09 Jan 2009 10:23:34 +0000

Recently the Consumer Product Safety Improvement Act is making headlines because it required that all products (including clothes) made for children 12 and under be tested for lead and a unpronouceable toxic plastic additive called phthalates. Additionally, retailers must check that their products were not part of a recall. What does this mean for your everyday life?

The law will become effective on February 10th and at first it sent waves of panic through thrift store owners because testing is expensive and each violation of the law could mean fines of $100,000 or jail time. On one hand, I appreciate that the government is trying to enhance product safety, but I feel that they were putting too much of a burden on too many people with this mandatory testing program. It does not make financial sense for a small time eBay clothing seller to spend $200 to test a $10 shirt, and if the products are not officially tested then they are considered hazardous and illegal to sell. This is precisely the reason why many thrift shop owners felt like they were forced to dump all of their inventory and close up. Honestly I think that products in second hand shops probably are less dangerous than new products because in a way the used things have been "tested" so to speak. Consumer products that have been recalled are less likely to show up in thrift stores simply due to the fact that they have been recalled. In comparison, new products such as these Simplicity Cribs are sold by the thousands and millions and only get recalled when someone gets hurt. Personally I have never heard of a story where a child died due to an used shirt.

Fortunately, it seems that the Consumer Product Safety Commission listened to the reasoning of the thrift shop owners and voted that second hand sellers will be exempt from mandatory testing of children's products so it shall be business as usual. I guess they realized it probably is not a good time to force a large group of small businesses to shut their doors when the economy is already gasping for air. All second hand sellers will still be required to check the CSPC website for recall announcements on the products they sell, but at least they do not have to throw everything away.

Another side effect of this law is that many small manufacturers and book publishers will be required to test their products for children. Some of them will inevitably be forced to close their doors or change their products completely because they do not have the resources to test all of their inventory. This law also applies to anyone who creates and sells handcrafted toys or clothes for children so some grandmas out there may just be dealing out illegal knitted beanies. On the flipside I think the government probably would not spend a lot of resources to enforce this law amongst individuals who sell their crafts, but you never know.

In a perfect world, nothing would be toxic and kids would be invincible, but in reality there is danger for children in almost everything in our homes. A pen could pierce a jugular vein and a piece of paper could be tainted with the flesh eating virus. It is really up to parents to be vigilant and watch what their kids are putting into their mouths and hands, but there is no need to be overly zealous. This new law will probably make products more safe in the long run, but we may lose small businesses along the way since for the most part only the large retailers and manufacturers can afford the testing. Additionally, children's products may become more expensive as a result.

What do you think? Are we trading freedom for a bit of perceived safety? Do you think the government will crack down on your neighbor who sells kid's jewelry online?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Questionable Aspects of The Housing Bailout Bill - H.R. 3221

Xin Lu — Thu, 24 Jul 2008 23:05:15 +0000

In my last article I wrote about the one aspect of the $300 billion dollar housing bailout that I thought made sense, but the full text of the bill known as H.R. 3221 is over 700 pages so it is too complex to discuss in any one blog post. Today I shall highlight some of the more questionable and even dangerous aspects of the bill.

Loose underwriting standards for troubled homeowners - In a section called "Flexible Underwriting Criteria", the bill states that The Oversight Board will "ensure that each mortgagor under a mortgage insured under this section has a reasonable expectation of repaying the mortgage, taking into consideration the mortgagor's income, assets, liabilities, payment history, and other applicable criteria, but which shall not result in a denial of insurance solely on the basis of the mortgagor's current FICO or other credit scores, or any delinquency or default by the mortgagor under the existing mortgage or mortgages, or any case filed under title 11, United States Code, by the mortgagor." Basically it says that a troubled homeowner can still qualify for a new government insured loan despite bad credit and past financial mistakes. This is encouraging for those truly trying to get out of their real estate nightmares, but I imagine it will probably result in more defaults because some financially irresponsible people just never change. When those second defaults come in, tax payers will have to eat more loan losses.

Revenue recovery through home sale profits - According to Section 257 of the bill, if the FHA gives a loan to a troubled homeowner then the FHA is entitled to an exit premium. This means that when the homeowner sells the home and makes a profit the FHA can collect all or a portion of the profits. The FHA is entitled to 100% of any profits realized within one year, 80% of any profit realized within two years, 60% of any profit realized within three years, and 50% of any profit thereafter. I can see a lot of ways to get around this provision. For example, sellers and buyers can work out a deal where it looks like the seller is not making a profit, but in actuality the buyer gives the seller cash in the form of a "gift". It also does not seem clear how they will collect these profits.

Credit card and other payment processors must report transactions to the IRS - At first glance, I thought that it was strange this is in this housing bill. Apparently, the government believes that if all credit card and other monetary transactions such as PayPal are reported they are likely to receive more tax revenues. Groups and consumers concerned with privacy are very wary of this provision because many small business owners use their own Social Security Numbers as a tax ID. See more information in this article from Computer World .

More tax credits and deductions for homeowners - There are over 60 sections in this bill related to various different tax incentives. One section describes the $7500 first time homeowner tax credit that I discussed a while back in this article. Another section allows an additional standard deduction on the federal tax return for filers who do not itemize for their local property tax. The additional deduction is $350 for an individual filer or $700 for a joint return so the impact should not be very big. As I said in my previous article, I think there are enough tax credits for homeowners already.

The Treasury gets a blank check to maintain Freddie Mac and Fannie Mae - The Treasury is given the authority to buy stocks and debt in these two giant Government Sponsored Enterprises in order to keep them afloat. In short, taxpayer money will be used to cover losses Freddie and Fannie incurred. This is pretty irresponsible considering that most tax payers did not benefit from Freddie and Fannie financially when their stocks were darlings of Wall Street. Now that these companies are falling down it is the taxpayers that have to pay for the damage.

The national debt limit is raised by $800 billion - All I have to say is, why do they even bother with a limit if they intend to spend and borrow as much as they can? This increase brings the debt ceiling to $10.6 trillion, and that is equivalent to about 75% of America's gross domestic product. This will probably devalue the dollar as America becomes a more risky place for investment.

The Senate is set on voting for this bill this week and President Bush has backed off from saying that he would veto this bill so most likely it will pass. I think this bill will be very costly to every tax paying American resident. It could also have the effect of artificially propping up home prices because lenders will probably jump at the chance of getting whatever they can from the government rather than going through a long and painful foreclosure process. If the government's agenda is to advance affordable housing, then this bill is not the answer.

What do you think of this complex and far reaching bill? Do you think it will help Americans or backfire in a horrible way?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Seller Funded Down Payment Assistance Charities - Scammers or Saints?

Xin Lu — Thu, 24 Jul 2008 00:21:35 +0000

The United States House of Representatives just passed a massive mortgage bailout bill that includes many changes to the Federal Housing Administration and the Government Sponsored Enterprises. One particular change in the bill is that seller-funded down payment assistance through a third party is now prohibited in obtaining FHA loans. This in direct response to the unscrupulous behavior of many seller funded down payment assistance charities that sprang up in the past decade.

The way seller funded down payment assistance charities worked was to take a "charitable" donation from a home seller and then pass on the money to a home buyer since laws prohibit home sellers from directly giving down payment assistance to buyers. These gifts were often given to low income or low credit individuals and families and allowed them to qualify for a home loan from the Federal Housing Administration (FHA) that requires a 3% downpayment. The charity would receive a processing fee from the home seller and the home seller often bumped up the price of the home so that the amount of their "gift" would be recovered from the purchase price. Since these charities were non-profits oftentimes the home sellers received a tax deduction for their contribution. The result was that the home buyer gets to get into a home without putting anything down, but eventually had to pay back the money they received in the form of fees or increased home prices.

The pioneer of these charities is Nehemiah Corp. of America. According to this article from the Columbus Dispatch, Nehemiah received 99 percent of its revenue from donations from home sellers. In particular, it had a partnership with a home seller called Dominion which routed money for thousands of home sales in central Ohio. Some home buyers have filed suit against these companies for the extra costs they had to incur in taking the "assistance".

Some proponents of these programs say that they really do help people who have little savings get into a home, but the cost of these loans to the FHA is very high. In April, FHA Commissioner Brian Montgomery said the following: "Insured loans relying upon seller-funded down payment assistance have been demonstrated to have an unacceptably higher risk of default and foreclosure - harming borrowers they intend to help and risking the integrity of the entire FHA program and its ability to help more at-risk low- and moderate-income homeowners. Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments. We simply cannot sustain this business." Today in the news item for the bailout bill it was reported that these programs are "largely the reason why the agency's reserve has fallen by $4.6 billion".

From my point of view, it seems that these seller funded payment assistance programs were just a way for home sellers to close deals in the guise of being charitable. True charity is when nothing is expected in return. Personally, I cannot believe that these scams lasted for so long. I am glad that Commissioner Brian Montgomery looked into this problem and actually did something about it. There are legitimate down payment assistance programs such as churches that receive donation from people who are not home sellers. Though smaller in scale, these programs are still around for those who need them. I am sure that schemers are finding new ways to exploit the insured FHA loans, but at least one large hole is plugged with the current bill.

Have you been helped by a down payment assistance program? What is your take on the issue?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The Federal Minimum Wage Increases This Week - Are You Getting a Pay Raise?

Xin Lu — Tue, 22 Jul 2008 05:40:05 +0000

On July 24th, 2008, the Federal minimum wage in The United States will increase from $5.85 per hour to $6.55 per hour in accordance to the 2007 amendment to the Fair Labor Standards Act. This is a 70 cent or approximately 12% increase from last year. Are You getting a pay raise?

I am guessing that for most people the answer is "no" because many businesses already pay more than the Federal Minimum Wage to compete for workers. Additionally, more than 20 states have their own minimum wage laws that give workers higher minimum wages than the Federal rate. For example, in California the minimum wage is already $8.00 per hour this year .

Some have argued that a raise in minimum wage would hurt small businesses, but according to a survey conducted last year , only 3 percent of the small businesses they surveyed paid their workers only the Federal minimum wage, and 6 percent paid only the state minimum wage. The remaining 91%, of small businesses already pay their workers more than the minimum wage so there is not much for them to worry about.

Next year the Federal minimum wage will rise again to $7.25 and stop there until there is more legislation. Some states already index their minimum wage increases to inflation and adjust it annually so the next increase also may not have too much of an impact on businesses that already pay above the minimum wage.

As always, you should know your rights as a worker no matter where you work. If you earn close to the minimum wage, then you should check your state's labor laws for the most updated minimum wage rates. If the law says that you are supposed to receive an increase in pay then you should make sure that you are paid the right amount on the effective date. If applicable, your workplace should also display a new poster informing you of the new minimum wage rates.

Are you getting a pay raise due to this law? Will it help you significantly in this economically challenging year?

This article is from Xin Lu of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: