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It’s Time to Revisit Your Student Loans

Last week, the Supreme Court voted against the White House Administration’s plan to eliminate up to $10,000 of student loans for non-Pell grant recipients and up to $20,000 of loans for Pell grant recipients. This news comes just as the three-year pause on student loans is coming to an end, with loan interest accruing again in September and payments beginning in October. 

The Administration plans to propose other types of aid to borrowers, such as reducing the income-driven repayment plan from 10% to 5% of disposable income and not reporting missed payments to credit rating agencies for 12 months. Still, the timeline on these proposals could take months to get approved — so it looks like it is time to prepare for paying back your student loans.

At Warren Street Wealth Advisors, we want you to take the necessary actions to feel confident about your next steps. Start with the considerations below, and feel free to reach out to your financial advisor with any questions.

1. Update your information on studentaid.gov.

Check that  your current contact and billing information are up-to-date with the Education Department on studentaid.gov. If you’ve moved, for example, the Education Department will need your updated address to contact you with loan status updates.

2. Determine how much outstanding student loan debt you have.

Work with your loan provider to see how much student loan debt you have remaining and how much the monthly payments will be. Once you know how much to expect each month, it will be easier to manage your spending.  

3. Factor student loan payments back into your budget.

Whether you use software to help analyze your budget or the back of an envelope to do your calculations, it is time to add up all of your expenses and compare them to your take-home pay. This will let you know if you will be running a surplus, breakeven or deficit each month going forward.

4. Explore income-driven options.

If you determine you might be at a monthly deficit with student loan payments, an income-driven repayment plan could be an option for you. However, while this option could help your monthly budget, it usually involves you paying more interest in the long-term and extends your payments well past the 10 year standard repayment plan.

5. Shore up your emergency fund.

It’s always a good idea to count your liquid cash savings, especially in a time like this. Having a three to six month emergency fund to fall back on will be important if you have a student loan bill you need to pay again. Now is a good time to start an emergency fund if you don’t have one. 

These are some of the most important steps to ensure you make payments on time and know what to expect in the near future when it comes to your debt management. Please reach out if you’d like to discuss these planning points with a Warren Street advisor!

Bryan Cassick, MBA, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Secure Act 2.0: Spending Today, Saving Tomorrow

It can be hard to save for your future retirement when current expenses loom large. We advise proceeding with caution before using retirement savings for any other purposes, but SECURE 2.0 does include several new provisions to help families strike a balance. 

  • Student Loan Payments Count as Elective Deferrals (2024): If you’re paying off student debt and trying to save for retirement, your student loan payments will qualify as elective deferrals in your company plan. This means, whether you contribute to your company retirement plan or you make student loan payments, your employer can use either to make matching contributions to your retirement account. 
  • Transferring 529 Plan Assets to a Roth IRA (2024): This one is subject to a number of qualifying hurdles, but SECURE 2.0 establishes a path for families to transfer up to $35,000 of untapped 529 college saving plan assets into the beneficiary’s Roth IRA. With proper planning, this may help families “seed” their children’s or grandchildren’s retirement savings with their unspent college savings.
  • New Emergency Saving Accounts Linked to Employer Plans (2024): SECURE 2.0 has established a new employer-sponsored emergency savings account, which would be linked to your retirement plan account. Unless you are a “highly compensated employee” (as defined by the Act), you can use the account to save up to $2,500, with your contributions counting toward matching funds going into your main retirement plan account. 
  • Relaxed Emergency Plan Withdrawals (2024): SECURE 2.0 relaxes the ability to take a modest emergency withdrawal out of your retirement plan. Essentially, as long as you self-certify that you need the money, you can take up to $1,000 in a calendar year, without incurring the usual 10% penalty for early withdrawal. Once you’ve taken an emergency withdrawal, there are several hurdles before you’re eligible to take another one.
  • Additional Exceptions to the 10% Retirement Plan Withdrawal Penalty (Varied): SECURE 2.0 has established new exceptions to the 10% penalty otherwise incurred if you tap various retirement accounts too soon. For example, there are several new types of public safety workers who can access their company retirement plans penalty-free after age 50. Various exceptions are also carved out if you’re terminally ill or a domestic abuse victim, or if you use the assets to pay for long-term care insurance. The Act also has modified how retirement plan assets are to be used for Qualified Disaster Recovery Distributions. Many of the new exceptions are fairly specific, so check the fine print before you proceed. 
  • Relaxed Emergency Loans from Retirement Plans (2023): If you end up living in a Federally declared disaster area, SECURE 2.0 also increases your ability to borrow up to 100% of your vested plan balance up to $100,000, with a more generous pay-back window. 
  • Expanded Eligibility for ABLE Accounts (2026): ABLE accounts help disabled individuals save for disability expenses, while still collecting disability benefits. Before, you had to be disabled before age 26 to establish an ABLE account. That age cap increases to 46. 
  • A Tax Break for Disabled First Responders (2027): If you are a first responder collecting on a service-connected disability, at least a portion of your disability payments will remain tax-free, even once you reach full retirement age and begin taking a retirement pension. 

Next Steps

If you missed the first part of the blog series, we discussed key provisions in the newly enacted SECURE 2.0 Act of 2022, including updates that impact (1) savers/investors and (2) employers/plan sponsors. Check in next week for the last part of this blog series, where we share tax planning tips under this new Act. 

Justin D. Rucci, CFP®

Wealth Advisor, Warren Street Wealth Advisors

Investment Advisor Representative, Warren Street Wealth Advisors, LLC., a Registered Investment Advisor

The information presented here represents opinions and is not meant as personal or actionable advice to any individual, corporation, or other entity. Any investments discussed carry unique risks and should be carefully considered and reviewed by you and your financial professional. Nothing in this document is a solicitation to buy or sell any securities, or an attempt to furnish personal investment advice. Warren Street Wealth Advisors may own securities referenced in this document. Due to the static nature of content, securities held may change over time and current trades may be contrary to outdated publications. Form ADV available upon request 714-876-6200.

Reference Materials and Additional Reading:

4 Money Blunders That Could Leave You Poorer

Not to do listA “not-to-do” list for the new year & years to follow.

Provided by: Warren Street Wealth Advisors

   

How are your money habits? Are you getting ahead financially, or does it feel like you are running in place?

 

It may come down to behavior. Some financial behaviors promote wealth creation, while others lead to frustration. Certainly other factors come into play when determining a household’s financial situation, but behavior and attitudes toward money rank pretty high on the list.

 

How many households are focusing on the fundamentals? Late in 2014, the Denver-based National Endowment for Financial Education (NEFE) surveyed 2,000 adults from the 10 largest U.S. metro areas and found that 64% wanted to make at least one financial resolution for 2015. The top three financial goals for the new year: building retirement savings, setting a budget, and creating a plan to pay off debt.1

 

All well and good, but the respondents didn’t feel so good about their financial situations. About one-third of them said the quality of their financial life was “worse than they expected it to be.” In fact, 48% told NEFE they were living paycheck-to-paycheck and 63% reported facing a sudden and major expense last year.1

 

Fate and lackluster wage growth aside, good money habits might help to reduce those percentages in 2015. There are certain habits that tend to improve household finances, and other habits that tend to harm them. As a cautionary note for 2015, here is a “not-to-do” list – a list of key money blunders that could make you much poorer if repeated over time.

 

Money Blunder #1: Spend every dollar that comes through your hands. Maybe we should ban the phrase “disposable income.” Too many households are disposing of money that they could save or invest. Or, they are spending money that they don’t actually have (through credit cards).

 

You have to have creature comforts, and you can’t live on pocket change. Even so, you can vow to put aside a certain number of dollars per month to spend on something really important: YOU. That 24-hour sale where everything is 50% off? It probably isn’t a “once in a lifetime” event; for all you know, it may happen again next weekend. It is nothing special compared to your future.

 

Money Blunder #2: Pay others before you pay yourself. Our economy is consumer-driven and service-oriented. Every day brings us chances to take on additional consumer debt. That works against wealth. How many bills do you pay a month, and how much money is left when you are done? Less debt equals more money to pay yourself with – money that you can save or invest on behalf of your future and your dreams and priorities.

     

Money Blunder #3: Don’t save anything. Paying yourself first also means building an emergency fund and a strong cash position. With the middle class making very little economic progress in this generation (at least based on wages versus inflation), this may seem hard to accomplish. It may very well be, but it will be even harder to face an unexpected financial burden with minimal cash on hand.

 

The U.S. personal savings rate has averaged about 5% recently. Not great, but better than the low of 2.6% measured in 2007. Saving 5% of your disposable income may seem like a challenge, but the challenge is relative: the personal savings rate in China is 50%.2

 

Money Blunder #4: Invest impulsively. Buying what’s hot, chasing the return, investing in what you don’t fully understand – these are all variations of the same bad habit, which is investing emotionally and trying to time the market. The impulse is to “make money,” with too little attention paid to diversification, risk tolerance and other critical factors along the way. Money may be made, but it may not be retained.

 

Make 2015 the year of good money habits. You may be doing all the right things right now and if so, you may be making financial strides. If you find yourself doing things that are halting your financial progress, remember the old saying: change is good. A change in financial behavior may be rewarding.

     

Warren Street Wealth Advisors

190 S. Glassell St., Suite 209

Orange, CA 92866

714-876-6200 – office

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    

Citations.

1 – denverpost.com/smart/ci_27275294/financial-resolutions-2015-four-ways-help-yourself-keep [1/7/15]

2 – tennessean.com/story/money/2014/12/31/tips-getting-financially-fit/21119049/ [12/31/14]

Getting Your Household Cash Flow Back Under Control

Getting Your Household Cash Flow Back Under Control

Developing a better budgeting process may be the biggest step toward that goal.

Provided by Warren Street Wealth Advisors

 

Where does your money go? If you find yourself asking that question from time to time, it may relate to cash flow within your household. Having a cash flow management system may be instrumental in restoring some financial control.

 

It is harder for a middle-class household to maintain financial control these days. If you find yourself too often living on margin (i.e., charging everything) and too infrequently with adequate cash in hand, you aren’t the only household feeling that way. Some major economic trends really have made it more challenging for households with mid-five-figure incomes.

 

By many economic standards, today’s middle class has it harder than the middle class of generations past. Some telling statistics point to this…

 

*In 81% of U.S. counties, the median income is lower today than it was in 1999. Even though we are in a recovery, much of the job growth in the past few years has occurred within the service and retail sectors. (The average full-time U.S. retail worker earns less than $25,000 annually.)

*Between 1989 and 2014, the American economy grew by 83% (adjusting for inflation) with no real wage growth for middle-class households.

*In the early 1960s, General Motors was America’s largest employer. Its average full-time worker at that time earned the (inflation-adjusted) equivalent of $50 an hour, plus benefits. Wal-Mart now has America’s largest workforce; it pays its average sales associate less than $10 per hour, sometimes without benefits.1,2

 

Essentially, the middle class must manage to do more with less – less inflation-adjusted income, that is. The need for budgeting is as essential as ever.

 

Much has been written about the growing “wealth gap” in the U.S., and that gap is very real. Less covered, but just as real, is an Achilles-heel financial habit injuring middle-class stability: a growing reliance on expensive money. As Money-Zine.com noted not long ago, U.S. consumer debt amounted to 7.3% of average household income in 1980 but 13.4% of average household income in 2013.3

 

So how can you make life more affordable? Budgeting is an important step. It promotes reliance on cash instead of plastic. It defines expenses, underlining where your money goes (and where it shouldn’t be going). It clears up what is hazy about your finances. It demonstrates that you can be in command of your money, rather than letting your money command you.

 

Budget for that vacation. Save up for it by spending much less on the “optionals”: coffee, cable, eating out, memberships, movies, outfits.

 

Buy the right kind of car & do your cash flow a favor. Many middle-class families yearn to buy a new car (a depreciating asset) or lease a new car (because they want to be seen driving a better car than they can actually afford). The better option is to buy a lightly used car and drive it for several years, maybe even a decade. Unglamorous? Maybe, but it should leave you less indebted. It may be a factor that can help you to …

 

Plan to set some cash aside for an emergency fund. According to a recent Bankrate survey, about a quarter of U.S. households lack one. Imagine how much better you would feel knowing you have the equivalent of a few months of salary in reserve in case of a crisis. Again, you can budget to build it – a little at a time, if necessary. The key is to recognize that a crisis will come someday; none of us are fully shielded from the whims of fate.3

 

Don’t risk living without medical & dental coverage. You probably have both, but some middle-class households don’t. According to the Department of Health & Human Services, 108 million Americans lack dental insurance. Workers for even the largest firms may find premiums, out-of-pocket costs and coinsurance excessive. This isn’t something you can go without. If your employer gives you the option of buying your own insurance, it could be a cheaper solution. At any rate, some serious household financial changes may need to occur so that you are adequately insured.3

 

Budgeting for the future is also important. A recent Gallup poll found that about 20% of Americans have no retirement savings. You have to wonder: how many of these people might have accumulated a nest egg over the years by steadily directing just $50 or $100 a month into a retirement plan? Budgeting just a little at a time toward that very important priority could promote profound growth of retirement savings thanks to investment yields and tax deferral.3

     

Turning to the financial professional you know and trust for input may help you to develop a better budgeting process – and beyond the present, the saving and investing you do today and tomorrow may help you to one day become the (multi-)millionaire next door.

      

Warren Street Wealth Advisors

190 S. Glassell St., Suite 209

Orange, CA 92866

714-876-6200 – office

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

     

Citations.

1 – washingtonpost.com/sf/business/2014/12/12/why-americas-middle-class-is-lost/ [12/12/14]

2 – tinyurl.com/knr3e78 [11/27/12]

3 – wallstcheatsheet.com/personal-finance/7-things-the-middle-class-cant-afford-anymore.html/?a=viewall [12/15/14]

 

Talking About Money Before & After You Marry

Talking About Money Before & After You MarryNo money secrets should stand between the two of you as you wed.

Provided by: Warren Street Wealth Advisors

 

 

 

No married couple should suffer from financial infidelity. If you hide debt, income or assets from your spouse, it can lead to a fight and possibly even an impasse in your relationship.

 

Communication & transparency are essential when it comes to money. That truth should be recognized by every couple tying the knot, or even just cohabitating. Yes, financial matters can prove hard to discuss – but if you can’t talk about them together, that’s already a serious problem.

 

That problem may affect more couples than we realize. In 2013, 7% of engaged individuals who answered a National Credit Counseling Foundation poll said that if they discussed money issues with their fiancé, it would prompt a fight; 11% felt such a talk would uncover financial secrets, and 5% said it would “cause us to call off the wedding.”1

 

On the bright side, 32% felt a conversation about financial matters would be “a productive and easy conversation to have.” The most frequent response (45%) was that a money discussion would be “awkward,” but also necessary for the health of the marriage.1

  

You have to tell your future spouse about your debts. Do it before you get married, not after. That debt will become your spouse’s financial concern as well as yours. The two of you should plan together to pay down your individual debts in the coming months or years. Again, this represents a shared commitment. Don’t put your name on your deeply indebted spouse’s credit card. Attaching your name to that account will have minimal impact on your FICO score, but you don’t want to pay a (literal) price for your spouse’s runaway financial impulses.2

 

If you have six credit cards between the two of you, see if you can slim it down to three or four – the ones with the lowest fees and best rewards programs. Or see if you can just use those three or four and let the other accounts lie dormant. That might be a better move than just canceling the excess credit cards – that could hurt you, especially in the case of older accounts. About 15% of your FICO score is based on the duration of your credit history, so if that was good history, you don’t quite want to say goodbye to it.2

 

Think about a new joint credit card account for the two of you. If you feel your spouse needs debt counseling before you can make that move, don’t be shy about requesting it. Even if your spouse has been living on plastic, think twice about leaving him or her without a credit card. You want (and need) to show some credit history.

 

You will have to compromise. The most valuable verb in marriage is also really valuable when it comes to your shared financial life. Maybe you’re a good saver, a future “millionaire next door” – and yet your spouse is a comparative spendthrift. If you can’t compromise on a “money policy,” then maybe you can find a middle ground by saving for a special experience. Or, maybe each of you can set aside a bit of money per month to spend or save purely at your discretion.

 

You may want to pay the bills proportionately. If one of you earns 70% of the household income, then maybe that spouse should pay for 70% of the household bills and expenses. To many newlyweds, that seems entirely fair.

 

Build retirement savings & an emergency fund together. Financially, there are few better ways to signify your long-term commitment to one another.

 

Wait on a big purchase. Consider waiting 24 hours (if you can) before going through with it. Or, alternately, set a dollar limit on such purchases – give each other limited financial autonomy I making major purchases that ends at X hundred or X thousand dollars. If the money exceeds that limit, then you both have to discuss it before it can occur.

 

Make a budget. In fact, strive to make a zero-based version, a budget in which income minus expenses comes precisely to zero each month. This is a way of accounting for each and every dollar spent (actual or projected) and a way to pinpoint potential monthly savings or redirection of income toward expenses.

 

Watch those taxes. Should you file your taxes jointly? Not necessarily. That is wise for many couples, but if your incomes vary greatly it may be better to file separately. Consult a tax preparer for an answer. Also, look at your W-4 at work. It may be time to adjust your withholding status. If your spouse isn’t employed, you get to add another withholding allowance. Assuming he or she is employed, you can turn to irs.gov to learn how many allowances you are due in total. Then, you can divide that total by two. You and your employer need to follow the instructions on the W-4 so you don’t withhold more or less than you should.

 

Talking about money isn’t always pleasant, but candor, communication and full disclosure can lead to clarity in your financial lives.

 

Warren Street Wealth Advisors

190 S. Glassell Street, Suite 209

Orange, CA 92866

 

Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC.
Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered
Investment Advisor. Warren Street and Cambridge are not affiliated.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

  

Citations.

1 – nfcc.org/press/multimedia/news-releases/two-thirds-of-engaged-couples-express-negative-attitudes-toward-discussing-money/ [5/31/13]

2 – washingtonpost.com/news/get-there/wp/2014/09/23/for-richer-or-poorer-a-financial-plan-for-newlyweds/ [9/23/14]