Life preserver

Student Loan Repayment: 12 Rules

It’s easy to drown in the financial details of student loan repayment.  Here’s a life preserver.

The rules of thumb listed below were culled from interviews with two experts on student loans. Betsy Mayotte is director of consumer outreach for American Student Assistance, a non-profit that educates people about their loans. Craig Lemoine is program director for the American College of Financial Services, which trains financial planners.

1. If you earn enough to make your payments, start paying.

The reason: Student loans in most cases must be repaid in full.  The sooner you start making your full monthly payments, the sooner your loans will be paid off and the less in total you will have to shell out.  A decision about how much extra to pay on student loans should be weighed in the context of other financial goals, including paying off high interest credit cards and putting enough money in a 401(k) to ensure you receive your employer’s match.

2. Open your student loan mail.   

The reason: Owing tens of thousands of dollars is serious business. Ignoring a letter from the company that holds your loan won’t make the problem go away – in fact, it could worsen things.

3. Call your loan servicing company.  But do not call without doing some homework first.  

The reason: If you’re struggling to pay your loans, the companies that handle your student loans can be very helpful.  They are experts not only on your particular loan account but also on the federal government’s rules for loan repayment. Nevertheless, student loan servicers are not perfect.  Representatives might not know much more than is on the U.S. Department of Education’s website, Lemoine said.  And sometimes their advice can conflict with information from another representative in an earlier phone call. To make sure you’re getting the best advice, it’s important to read the information on the federal website, know your potential options, and compile a list of detailed questions pertinent to your unique situation. “Going in blind can cost you money,” he said.

4. The best option for lower-income former students with high debt levels is an income-based repayment plan. …Learn More

Feature

Retirees’ Tax Puzzle: Pay Now or Later?

The majority of retirees pay no federal taxes. But taxes should be a concern for retirees who have retirement savings. That’s because the money they take out of their retirement accounts for living expenses will be treated as federal taxable income. It’s difficult enough to figure out how much money to withdraw – and when. Taxes are a separate but related issue.  

In this blog, we interviewed Michael Kitces, a well-known financial adviser and partner with a Maryland financial firm, who writes the “Nerd’s Eye View” blog. He discusses the basics of navigating the tax code. The challenge facing retirees is to make tax decisions today that will minimize taxes now and in the future.

Question: Do you find that new retirees are surprised by their retirement tax situation?  

Kitces: It’s usually not even on their radar screen. Pre-tax and post-tax income, different tax buckets – I don’t think most people even think about it once they’re in retirement. That’s why we’re still seeing people who are “surprised” when they turn 70½ and the required minimum distributions (RMDs) begin, and their tax bill gets a whole lot higher. They say, “Why didn’t we plan for this?” We say, “We’ve been recommending you plan for this for years!” …Learn More

Parent and child holding hands

Parents Pass (Bad) Money Habits to Kids

When people are asked why they are stressed, money – or the lack of it – is often at the top of the list.

Ask psychologists why this is so, and many would point to a deeper explanation: our parents.

How and whether our parents talked about money, as well as the emotional tenor of these conversations – or silences – are critical to how we manage money as adults.

Sonya Britt, a certified financial planner and associate professor at Kansas State University, explained how these family dynamics play out in a research summary written for financial planners, under a contract with the federal Consumer Financial Protection Bureau.

Britt describes a two-way street between parent and child.  Parents signal their attitudes about money, either through purposeful and explicit messages or in unconscious ways.  Meanwhile, children learn the behaviors that take them into adulthood by observing what parents do.  These observations can override financial knowledge in shaping behavior.

For example, college students who remember that their parents had healthy credit card practices, such as living within their means, are more successful at keeping their college debt under control.  Generally, parents are advised to talk about financial matters with their children – it’s known as parental financial socialization.  Avoiding such conversations has a negative effect that can “wreak havoc on children as they age.” In extreme cases, silence can lead some to hoard money as adults and others to be careless spenders.

Financial dependence in post-adolescence is an emerging issue as young adults extend the amount of time they live in their parents’ homes, often to cope with college debts and inadequate employment options.  Young adults whose parents provide financial help tend to develop dependency. In contrast, the offspring of people with fewer financial resources – who can’t help their children – learn more quickly to become financially independent. …
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Guy in front of chalkboard with equations

Your Social Security: 35 Years of Work

This blog is for a part-time Macy’s saleswoman and immigrant whom I met in a hospital waiting room – she’d never heard of Social Security.

It is also for a 22-year-old contingent worker I know who lacks steady employment and isn’t regularly accruing credit toward the Social Security pension he will probably need when he retires.

And it is for a 62-year-old eager to claim his benefit right away, possibly short-changing his retirement.

A substantial share of retirees would fall into poverty were it not for the Social Security program passed during the Great Depression.  It’s especially important for two groups of people to understand how Social Security calculates their pension benefits: young adults making employment decisions that will impact them decades from now and older people figuring out when to retire.

Yet research shows that many people do not know the basic workings of a program that is crucial to their financial security.

Steve Richardson, a Social Security official in Boston, holds regular seminars to explain the pension program to the public. “The first thing I ask is – before I say my name – ‘How many people in this room know how many years Social Security looks at to determine your pension payment?’

“Not many of them know it’s your high 35 years of earnings.”

To qualify for a pension benefit at all, a person must work full- or part-time for 40 quarters – a total of 10 years. That’s not a difficult hurdle for most to clear during decades in the labor force. What’s central is the size of your future benefit check, which is determined by your highest 35 years of indexed earnings, Richardson said – and that brings us to the math thing. …Learn More

college kids

Starting the College Conversation Early

Parents have finished the summer college tours with their teenagers.  Now comes the hard part: figuring out how to pay for college. But Judith Ward, a senior financial planner for T. Rowe Price in Baltimore, urges parents to prepare for this moment well before their child’s high school graduation to help minimize college costs when the time comes.

Squared Away interviewed Ward, whose advice comes from a combination of her professional experience and putting her own two kids through college. They are now 23 and 27, employed, and paying back modest student loan balances.  

Your company’s 2016 survey of parents and children between ages 8 and 14 about paying for college points to a disconnect between what young kids are expecting in terms of paying for college and what their parents are planning on.

Yes, we found in our survey that 62 percent of kids expect their parents to cover most of whatever college they want, but 65 percent of parents say they’ll only be able to contribute some to their college. There’s definitely a disconnect. But it’s easy to rectify – just start talking to your kids about college.

Question: Can parents really talk to their kids about college at 8, 9 or 10? And what do they talk about?

In fairness to the kids who answer these survey questions, they have no idea what the cost of college is. It’s not the enormous number it is to their parents. But start when they’re young by having conversations that are not necessarily about the cost of college. Just start making college part of the conversation and sharing your own stories. That will have them thinking about college and thinking, “I’m going to be expected to go to college.” …Learn More

Seniors

Is There a Senior Housing “Crisis”?

Headlines about how much senior housing the aging baby boom generation is going to require often include the word “crisis.”

But it might be time to rethink our dire assumption that there won’t be enough housing for seniors, since boomers are living longer and are healthier than past generations and are changing what it means to grow old in this country.

One example is the U.S. nursing home population, which has remained fairly stable even though the elderly population is growing, according to a 2010 report by the Stanford Center on Longevity. The center cited better health as a key contributing factor.

Taking trends like these into account, a California real estate services firm has raised the age assumptions it uses to project increases in demand for senior housing, defined as facilities that include some level of care. The firm, Rockwood Pacific, still expects demand to increase over the next decade but at a slower rate. After that, when the oldest boomers are starting to turn 80, demand will continue to rise but also more slowly.

“When I started in this business in the 1990s, everyone talked about the 65-plus population” and its need for senior housing, said co-founder Frank Rockwood. “Now when you go to a senior housing conference, we talk about 75-plus. I’m saying now the time’s come we need to discuss 80-plus, rather than 75-plus.”

Doing so leads to big drops in the number of potential candidates for nursing homes, memory care units, and assisted living and independent living facilities, according to Rockwood’s estimates. (Residents in independent living communities share a central dining room and tend to be healthier than people the same age who reside in assisted living facilities, he said.)

Assuming people largely won’t need senior housing until at least 80, the firm lowered its forecast of demand growth over the next decade to about 2-3 percent annually, down from 3-4 percent under the 75-plus assumption. …Learn More

Seniors Find an Affordable Haven

Mary Roby

The stress of living with her son and daughter-in-law made Mary Roby’s blood sugar spike. But when she began her search for an independent senior housing community, affordable and nice never seemed to come in the same package.

Roby, who is 80, said she looked around quite a bit. A one-room place in the Boston area for $4,500 a month had no senior services, a limited kitchen, and was housed in a poorly maintained building. She also knew, through her son’s in-laws, about a high-end assisted living community with extensive services, but it charged more than $6,000.

Then she found Shillman House, which was both affordable and nice. “I love it here,” Roby said about the independent senior housing community in Framingham, Mass. …Learn More

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