Archive for ‘post-college life’

April 1, 2014

Turbo Tax being used to promote income-based student loan repayment

by Grace

The federal government has begun to use Turbo Tax to promote income-based and other income-dependent college loan repayment programs.

The new push from the Departments of Treasury and Education uses tax time to promote the opportunity for a borrower to have their entire debt repaid after 20 or 25 years. The agencies are partnering with TurboTax, the tax software used by more than 18 million Americans, to advertise the deal….

Turbo Tax users will see information about loan repayment options and a link to the Department of Education website in a section of the program called “My Money Tools.”

They are provided with a link to a calculator that uses tax information, including their adjusted gross income, marital status and household size to determine eligibility for income-based and other income-dependent repayment programs.

The options allow qualified borrowers to lock-in monthly payments that are determined by how much they make, not how much they owe.

This new marketing push coincides with the upcoming introduction of more generous taxpayer subsidies for student borrowers.

Those graduating after 2014 will have the option of applying to an even more generous program Congress passed in 2009 that would set payments at 10 percent of discretionary income for 20 years. After that, the loan is forgiven.

The Turbo Tax promotion comes after the Obama administration and other supporters expressed concern that not enough borrowers were taking advantage of Income Based Repayment (IBR), a student loan forgiveness program.

Kelsey Snell, “Student loan debt deal comes with tax catch”, Politico, 3/26/14.

Related:  Federal student loan programs create perverse incentives (Cost of College)

March 31, 2014

Start saving for retirement in your twenties, if you can

by Grace

The power of compounding is a reason to start saving for retirement as early as possible.

J.P. Morgan offers an illustration of “the importance of saving sooner than later”.

Their example consists of three people who experience the same annual return on their retirement funds:

  • Susan, who invests $5,000 per year only from ages 25 to 35 (10 years)
  • Bill, who also invests $5,000 per year, but from ages 35 to 65 (30 years)
  • And Chris, who also invests $5,000 per year, but from ages 25 to 65 (40 years)

Intuitively, it makes sense that Chris would end up with the most money. But the amount he has saved is astronomically largely than the amounts saved by Susan or Bill.

Interestingly, Susan, who saved for just 10 years, has more wealth than Bill, who saved for 30 years.

That discrepancy is explained by compound interest.

You see, all of the investment returns that Susan earned in her 10 years of saving is snowballing — big time. It’s to the point that Bill can’t catch up, even if he saves for an additional 20 years.

 

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Saving for just 10 years now works out better than saving for 30 years later

Saving “$5,000 per year only from ages 25 to 35 (10 years)” will generate a larger retirement nest egg than saving “$5,000 per year, but from ages 35 to 65 (30 years)”.


It’s often hard for 20-somethings to save.

Many young college graduates are unable to start saving in their twenties because they are pursuing graduate degrees.  Others may be woefully underemployed or working in low-paying internships, understandable in light of the fact that we are experiencing worst unemployment rates for college graduates in 50 years.  Some are struggling to support families.  Other 20-somethings may simply be squandering their paychecks by living the high life of frequent traveling and expensive dinners with friends.

ADDED:  Burdensome student loan payments prevent many recent college graduates from putting money away for retirement.

Business Insider recommends that “Every 25-Year-Old In America Should See This Chart”.  Considering that decisions about how they will be spending their twenties are often made at a younger age, I think every 18-year old in America should also see this chart.  Realistically though, all this is much more clear in hindsight.

Sam Ro, “Every 25-Year-Old In America Should See This Chart”, Business Insider, Mar 21, 2014.

Related:  A quick way to calculate how much you’ll need for retirement (Cost of College)

March 18, 2014

A quick way to calculate how much you’ll need for retirement

by Grace

It can be complicated to calculate how much you’ll need to save for retirement.  Here is a method that is relatively simple, and will help most people get a general idea of their needs.

Start with assuming that you will live 20 years in retirement, and then modify that number based on your health, family history, and other factors.

Then use a replacement ratio to determine the annual income you will need during your retirement years.  Use your current income or the income you expect to have during your peak earning years, and apply a percentage according to the following guidelines.

Simple lifestyle versus current; little-to-no-travel; inexpensive hobbies: 80% 
Moderate lifestyle versus current; upgrades to home and car expected; some travel and hobbies planned, but nothing lavish: 90% 
Maintain your current lifestyle: 100% 
Improved lifestyle versus current; increased travel and hobbies: 110%

If you expect to have remaining debt upon entering retirement, add 5 percent to 10 percent to your replacement ratio depending on the amounts you still owe.

Once you know your replacement ratio, use this calculation:

(current income x replacement ratio) x 20 = your retirement savings goal

For example, if you currently earn $100,000 annually and determined your replacement ratio to be 90 percent:

($100,000 x 0.90) x 20 = $1,800,000

Again, this assumes you’ll spend 20 years in retirement, so adjust accordingly if necessary.

This method is streamlined, and excludes Social Security income as well as explicit inflation assumptions.  But it serves to give most people a sense of what their retirement savings goal should be.

ADDED:
This method does not account for families that live well below their means.  For example, a dual-income couple may live on one income and save the rest.  For these frugal families, it would be better to substitute “living expenses” for “current income” in this calculation.

For information about two other approaches, one more simple and another more complicated, go to this article at US News Personal Finance.

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February 26, 2014

Growing student debt may be a reason for weak housing market

by Grace

A recent headline from the Washington Post highlights the problem of how growing student debt may be hampering an economic recovery.

Student debt may hurt housing recovery by hampering first-time buyers

The share of 25-year olds who have student loans is now at almost 50%, with an average loan balance of over $20,000.  Instead of saving money for a down payment to buy a house, many of these young people must prioritize paying down their student loans.

The money going into paying down student loans is not going into saving for a down payment.

First-time buyers, the bedrock of the housing market, are not stepping up to fill the void. They have accounted for nearly a third of home purchases over the past year, well below the historical norm, industry figures show. The trend has alarmed some housing experts, who suspect that student loan debt is partly to blame. That debt has tripled from a decade earlier, to more than $1 trillion, while wages for young college graduates have dropped.

The fear is that many young adults can no longer save for a down payment or qualify for a mortgage, impeding the housing market and the overall economy, which relies heavily on the housing sector for growth, regulators and mortgage industry experts said.

Recent changes place greater restrictions on the debt-to-income ratio allowed for mortgages.

Federal rules that took effect last month grant mortgage lenders broad legal protections as long as they do not approve loans for prospective buyers whose total monthly debt exceeds 43 percent of their monthly gross income. The overarching goal is to protect borrowers against lender abuses.

Most who struggled to buy their first home blame student loans.

Of the 20 percent of first-time buyers who said it was difficult to save for a down payment, 54 percent said student loans made it tough to save money, according to a recent survey by the National Association of Realtors. About half of the people polled in another of the group’s surveys said student debt was a “huge” obstacle to buying a home.

On the other hand, my anecdotal information tells me that a reluctance to be tied down to one location may also be an important factor in why young people are reluctant to buy homes.

Related:  Amid declining household debt, rising student loans remain a drag on the economy (Cost of College)

January 31, 2014

Changes in marriage patterns have affected poverty and income inequality

by Grace

Florida Senator Marco Rubio’s recent comments on the benefits of marriage in reducing poverty were soundly criticized by some left-leaning voices.  Rubio had offered up “a very old idea”:

Social factors also play a major role in denying opportunity. The truth is that the greatest tool to lift people, to lift children and families from poverty, is one that decreases the probability of child poverty by 82 percent. But it isn’t a government program. It’s called marriage.

National Review Online clarified that “cajoling impoverished single mothers into marrying men who don’t have particularly bright labor market prospects” is not the solution proposed by Rubio or other conservatives.  Rather, the idea is to encourage marriage before having children.

Even amid strong resistance to this idea among liberals, the New York Times has reported about the effect of marriage on poverty.

changes in marriage patterns — as opposed to changes in individual earnings — may account for as much as 40% of the growth in certain measures of inequality.

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Another notable trend is how the rise of assortative mating has increased income inequality.

… Income inequality has gotten worse in past decades in part because college-educated, high-earning men and women are more likely to marry each other, rather than get hitched to partners with divergent education or wage levels.

This is the finding of a research paper, “Marry Your Like: Assortative Mating and Income Inequality”  authored by economists Jeremy Greenwood, Nezih Guner, Georgi Kocharkov, and Cezar Santos.

No “solution” is proposed.

The rich, married, and educated get richer while the poor, single, and uneducated fall further behind.

… College-educated households are more likely to be married and thus more likely to have secondary earners contributing to household income.

… “assortative mating” … married college-educated persons are more likely to have a college-educated spouse. Thus, they are more likely to have a spouse with high earnings.

Related:  Lack of college-educated men may be a reason for declining marriage numbers (Cost of College)

January 24, 2014

Some career advice is timeless, and some is only recently relevant

by Grace

Successful entrepreneur Jason Nazar has some advice for 20-year-olds.

… Call me a curmudgeon, but at 34, how I came up seems so different from what this millennial generation expects.  I made a lot of mistakes along the way, and I see this generation making their own….

Some of Nazar’s suggestions have been around for many years, while others are new and relevant to the current business environment.  Here are a few from his list of “20 Things 20-Year-Olds Don’t Get .

When it comes to communication, young people seem to prefer texting and email over talking.  But sometimes a personal touch makes a difference, and the sound of your voice can be important.

Pick Up the Phone – Stop hiding behind your computer. Business gets done on the phone and in person.  It should be your first instinct, not last, to talk to a real person and source business opportunities.  And when the Internet goes down… stop looking so befuddled and don’t ask to go home.  Don’t be a pansy, pick up the phone.

When you’re new on the job, working hard is a must.  Maybe there will be time later on to coast, or maybe not.

Be the First In & Last to Leave ­– I give this advice to everyone starting a new job or still in the formative stages of their professional career.  You have more ground to make up than everyone else around you, and you do have something to prove.  There’s only one sure-fire way to get ahead, and that’s to work harder than all of your peers.

Nobody wants the challenge of managing an employee who lacks initiative and needs to be told what to do.

Don’t Wait to Be Told What to Do – You can’t have a sense of entitlement without a sense of responsibility.  You’ll never get ahead by waiting for someone to tell you what to do.  Saying “nobody asked me to do this” is a guaranteed recipe for failure.  Err on the side of doing too much, not too little.

This one caught me a little by surprise since I have sometimes found myself buying  into the idea that social media ranks highest in what makes a company successful.

Social Media is Not a Career – These job titles won’t exist in 5 years. Social media is simply a function of marketing; it helps support branding, ROI or both.  Social media is a means to get more awareness, more users or more revenue.  It’s not an end in itself.  I’d strongly caution against pegging your career trajectory solely to a social media job title.

If I thought they would take heed, I would send this list to some young people I know.  It’s mainly good advice.

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December 27, 2013

Investment bankers will be allowed to take it easy one weekend every month

by Grace

Investment bankers will be getting more time off, according to an email newsletter from eFinancialCareers.

Jeff Urwin, global head of investment banking at J.P. Morgan, has confirmed reports that the bank will indeed introduce “protected weekends,” where analysts and associates are barred from even entering the office during one weekend every month.

Wow, one whole weekend free from work.  How rare is that for anyone nowadays?  But wait, you don’t need to be in the office to work.  You can sneak in a little deal-making by working remotely.  I’m sure some of the more competitive bankers will continue to be productive every weekend even if they’re banned from the office.

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More hiring will be needed.

But that’s not all. Urwin also reportedly told employees that J.P. Morgan will hire roughly 10% more junior investment bankers in 2014, likely due, at least in part, to the need to fill in the gaps created by the protected weekends. No matter what the cause, J.P. will extend more employment offers in the coming year.

A good sign for job growth?

Both of JPM’s moves fall in line with those made by Goldman Sachs, which also announced it would be dialing back the workload thrust upon its junior workers and will hire more in 2014.

Whether they want to or not, other banks will surely need to follow suit. Goldman and J.P. Morgan didn’t make these decisions out of the kindness of their heart. They did it because the pay at the junior level isn’t what it used to be and talented people are getting burned out and leaving the profession early. Or worse, they are heading to Silicon Valley before ever step foot in the building.

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December 20, 2013

Is the Pajama Boy message directed to moms?

by Grace

The Obamacare Pajama Boy has been getting a lot of ribbing this week.  Most people seemed to agree it was not the best image to use for the purpose of encouraging young people to buy health insurance.

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Surprisingly, pajama onesies in adult sizes are available for purchase, just in case anyone would like to recreate that look.

It’s true that many young people could use some advice on appropriate job interview attire, but I hope Pajama Boy at least knows that red plaid does not convey a sense of professionalism.

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Ann Althouse suggests the Pajama Boy message is directed not to young people, but to their parents.

What is the message in the original Pajama Boy tweet? Pajama Boy is home for the holidays, reintegrated into his parents’ concept of him, as if he is still a little boy. He accepts that — the chocolate and the Christmas/holiday pajamas — because he loves his parents and he wants a good visit. But the subject of health insurance can be talked about in that milieu. For some reason, it won’t be inappropriate, won’t spoil the home-for-the-holidays spirit, it can fit. Pajama Boy is not a “douchebag.” He’s an average young guy, trying to do what’s right, including visiting his parents and living up to their expectation,s and he needs a little prodding to talk about getting insurance, which is part of what a good little boy should do.

But maybe the message is not so much for the boy but for the parents. The parents may think that when their little guy comes home for the holidays, they just want to baby him. But they really should also make sure he’s got his insurance. Don’t completely pretend he’s still a child. He’s your kid and you need to make sure he’s safe and sound. Jammies and warm milk are comforting, but he needs more protection than that. Do what you can to protect your little sweetheart now, before he once again leaves the bosom of the family and exposes himself to the danger of the world beyond the home. He may not quite yet realize what the risks and helping the “young invincibles” get insured is a parental responsibility just like the clothing and feeding you did when he was young. He doesn’t really need those jimjams and cocoa. He needs insurance. Help this dear boy one last time, Mama.

Appealing to helicopter moms, perhaps?

Related:  Can young college graduates burdened by student loans be convinced to buy health insurance? (Cost of College)

December 18, 2013

Cash may be the perfect holiday gift for young adults

by Grace

Recent college graduates and young adults still in college may prefer cash as a Christmas gift.

Cash gifts are often written off as too impersonal, or, as in Ms. Starkey’s case, not festive enough. But as you’re scrambling to find the perfect something for a loved one, particularly the students and graduates who collectively hold about $1.2 trillion in student debt, a little financial wiggle room might be exactly what they want and need.

A New York Times article offers specific ways to make the gift of money personal to a recipient’s needs.  Some ideas are to make a loan payment, pay tuition, or contribute to a 529 plan.

A gift of appreciated stock to someone in a lower tax bracket may benefit both parties.

APPRECIATED STOCK Given the stock market’s ascent over the last few years, you may be sitting on stock that has also risen appreciably. If you give those shares to a relative or friend in a lower tax bracket, he can sell them for cash and may pay far less in capital gains taxes than you would. The gift recipient could also use the proceeds to reinvest in broad-based index fund within that new Roth I.R.A. you helped set up.

But parents who give stock to younger children may not achieve the same sort of tax savings: The kiddie tax may apply if the child is under age 19, and in some cases up until age 24 if he is a full-time student and still receiving parental support. In that case, the child would still pay capital gains taxes at the parents’ rate, Mr. Luscombe explained.

Since I lack creative gift-giving ideas and because I believe cash is best, I usually go for the green in gifting to teens and young adults.  This year I decided to present the cash in bright red envelopes, a Chinese tradition used for monetary gifts on New Year’s and other occasions.  I think they will add a festive touch to the boring gift of cash.

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Related:  How college students spend their Christmas break (Cost of College)

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November 26, 2013

Will the millennial generation be skipped over in its quest for prosperity?

by Grace
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CLICK IMAGE TO SEE DETAILS

College-educated young Europeans are asking themselves what went wrong in their quest for a lifestyle at least as prosperous as that of their parents.

The question is being asked by millions of young Europeans. Five years after the economic crisis struck the Continent, youth unemployment has climbed to staggering levels in many countries: in September, 56 percent in Spain for those 24 and younger, 57 percent in Greece, 40 percent in Italy, 37 percent in Portugal and 28 percent in Ireland. For people 25 to 30, the rates are half to two-thirds as high and rising.

Those are Great Depression-like rates of unemployment, and there is no sign that European economies, still barely emerging from recession, are about to generate the jobs necessary to bring those Europeans into the work force soon, perhaps in their lifetimes.

Dozens of interviews with young people around the Continent reveal a creeping realization that the European dream their parents enjoyed is out of reach. It is not that Europe will never recover, but that the era of recession and austerity has persisted for so long that new growth, when it comes, will be enjoyed by the next generation, leaving this one out.


Meanwhile, in the United States:

For the first time in memory, adults in the United States under age forty are now expected to be poorer than their parents. This is the kind of grim reality that in other times and places spurred young people to look abroad for opportunity. Indeed, it is similar to the factors that once pushed millions of people to emigrate from their home countries to make their home in America. Our nation of immigrants is, tautologically, a nation of emigrants.

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