Student Loan/401k Hybrid

[HoosierLife]

First reading, it doesn’t sound like a horrible idea.

Still feel like it’s more about control and wealth redistribution.

New law links your student loans with retirement savings

Tucked inside the $1.7 trillion government spending bill are a series of provisions that experts say is nothing short of a redefinition of what makes up the retirement system itself.

www.yahoo.com

 

[patience0830]

Stop borrowing money for school. It is a bad idea. And definitely don't risk your 401k becoming a taxable(and penalized) distribution if you lose your job or change jobs and can't pay it off by the deadline. By borrowing against it you lose the growth it would have given on top of the other risks.

Borrowed Future Documentary: Uncovering the Student Loan Crisis in America

The Borrowed Future Documentary uncovers the dark side of the student loan industry and exposes how the system is built to work against consumers.

www.ramseysolutions.com

 

[Ark]

Why would I need this if Joe is going to forgive the debt?

Yet more evidence that Democrats knew it was a scam all along. Of course .gov is going to get their money.

As for retirement, well, no point in saving when Democrats are seeing to it that the value of my money poofs away faster than I can stash it.

 

[Vodnik4]

Excuse my extreme pessimism, but this is how this linking student debt, “emergency expenses” and retirement savings will play out:
1) you, responsible hard-working person, put aside your hard-earned money, denying yourself instant gratification, to grow your retirement fund, hoping for less-miserable old age
2) Government, which now had access to that private retirement, is going to take that money to pay for votes and give cash to never-do-wells so they can buy themselves fashionable trinkets from China, for “equity” and “emergency”, because reasons.

How do I know this? CA is constantly trying to raid my in-laws CalPERS for retarded CA reasons.

 

[funeralweb]

Excuse my extreme pessimism, but this is how this linking student debt, “emergency expenses” and retirement savings will play out:
1) you, responsible hard-working person, put aside your hard-earned money, denying yourself instant gratification, to grow your retirement fund, hoping for less-miserable old age
2) Government, which now had access to that private retirement, is going to take that money to pay for votes and give cash to never-do-wells so they can buy themselves fashionable trinkets from China, for “equity” and “emergency”, because reasons.

How do I know this? CA is constantly trying to raid my in-laws CalPERS for retarded CA reasons.

3) .gov then borrows from foreign entities and/or prints more money to replenish your original funds that they squandered, creating more inflation in your (my) increasingly-miserable old age. Any growth is eroded and written off but you (I) receive the original principal out of the goodness of their hearts.

 

[Shadow01]

Instead of student loan forgiveness, the government should add 25% to everyone’s IRA rollover for the poor oversight of the economy. We can cal, it the “ sorry we are so incompetent refund”. Let the youngins pay that debt as a learning experience.

 

[MCgrease08]

Every aspect of this just shows how stupid congress is with money.

People with student loans shouldn't be contributing to their 401ks while paying off loans. They're broke. They need to get out of debt as fast as they can, build up an emergency fund, then they can start saving for their future.

And making it easier to borrow against a 401k in an emergency is just making it easier to steal against your future. It the dumbest way to access money, maybe outside of a payday lender.

So on one hand, we have congress, who couldn't make a profit running a lemonade stand, saying they want people to prepare for the future, by making it easier to pull money out of the bucket funding their future??? Did I get that right?

Good Lord these people are morons.

 

[JettaKnight]

Every aspect of this just shows how stupid congress is with money.

People with student loans shouldn't be contributing to their 401ks while paying off loans. They're broke. They need to get out of debt as fast as they can, build up an emergency fund, then they can start saving for their future.

I'll be the contrarian and say that getting into the habit of retirement savings early in life is a good thing.

I mean we don't tell people to stop saving for retirement until they pay off their house or cars, do we? (Well I'd tell someone not to borrow money for a car, but...)

And getting a student loan isn't stupid, unless it's for a stupid degree. In many, many cases it's stupid not to borrow money when you evaluate future earnings.

And making it easier to borrow against a 401k in an emergency is just making it easier to steal against your future. It the dumbest way to access money, maybe outside of a payday lender.

I almost all cases, yes.

 

[MCgrease08]

I mean we don't tell people to stop saving for retirement until they pay off their house or cars

Cars? Yes. House? No.

Investing for retirement shouldn't start until all consumer debt is paid off and you have an emergency fund in place. But I drink the Dave Ramsey Kool-Aid so I know I'm weird.

BABY STEP 1
Save $1,000 for your starter emergency fund.

BABY STEP 2
Pay off all debt (except the house) using the debt snowball.

BABY STEP 3
Save 3–6 months of expenses in a fully funded emergency fund.

BABY STEP 4
Invest 15% of your household income in retirement.

BABY STEP 5
Save for your children’s college fund.

BABY STEP 6
Pay off your home early.

BABY STEP 7
Build wealth and give.

 

[patience0830]

I'll be the contrarian and say that getting into the habit of retirement savings early in life is a good thing.

I mean we don't tell people to stop saving for retirement until they pay off their house or cars, do we? (Well I'd tell someone not to borrow money for a car, but...)

And getting a student loan isn't stupid, unless it's for a stupid degree. In many, many cases it's stupid not to borrow money when you evaluate future earnings.


I almost all cases, yes.

Borrowing money for any degree if you can find ANY other way to get through school( ahem. . .like work) is stupid. Borrowing money for a degree in underwater basketweaving (ahem. . .gender studies) or the like will have you I indebted until you die while you ask people, "Do you want fries with that?"

Watch that borrowed future thing. Maybe that will convince you.

Paying yourself first, AKA saving for retirement is always a good thing but stopping it for a couple years to eliminate consumer or student debt isn't a bad thing. With no payments, you can catch up pretty quickly.

 

[patience0830]

Instead of student loan forgiveness, the government should add 25% to everyone’s IRA rollover for the poor oversight of the economy. We can cal, it the “ sorry we are so incompetent refund”. Let the youngins pay that debt as a learning experience.

And they should have to contribute the entirety of their personal wealth to start to replenish the "Social Security Lockbox" they raided and put into the general fund years ago. Bastards.

 

[JettaKnight]

When I had a student loan under 3% with tax deductible interest, and it was a solid bull market, that's no brainer in my book - pay the minimums, invest the money.

As with everything in life, it pays to do the math for your own situation.

 

[JEBland]

Cars? Yes. House? No.

Investing for retirement shouldn't start until all consumer debt is paid off and you have an emergency fund in place. But I drink the Dave Ramsey Kool-Aid so I know I'm weird.

I don't agree, despite agreeing with the motivation.

My one uncle gave similar advice as @JettaKnight 's "get busy building the habit" but felt that was a bad choice for me too. I graduated my bachelor's with ~8k of debt, had a small side hustle most of graduate school (tutoring and a little contract work), paid that off. I did not start retirement savings since post-grad work is far better paying than being a teaching/research assistant at the cusp of the poverty line (which taught me that the poverty line is a somewhat comfortable living for a transitional period). During that time I may have used an envelope or two.

Started my job this recent September. Company will match 6% if I put in 8% of my pay into retirement savings. So. I get an effective 6% increase in my pay if I put in 8% for retirement. My new car that I purchased doesn't change that. Sure, I could've gotten slightly better interest rate with a 3 year loan instead of 5 year, but I want the longer term loan on my credit history so I can go from ~790 FICO up to 815 in those few years. Now, one might say that I should still do the 3 year loan, and pay less interest over those two years. Fair enough, but there are some other expenses coming up in this next year that makes me want to have the extra $100-150/month set aside for so that I don't need to put that ~2-3k on credit cards when the time comes when I have a stable low-interest car loan that is giving me a more substantial credit history (why, oh why didn't I go 100k into debt for college )

All that said... I know people with 2-3 car loans, 2-3 mortgages, furniture is on credit, and they're spending more. Not exactly my style.

I'd rather people learn how to do accounting and figure out the best plan for them at their stage of life. I had success using envelope methods (bought the jewelry for my marriage that way), but it doesn't make sense for my current situation. Hopefully, the young people starting out learn to take some advice from the frugal "old" people in their lives and take it with a grain of salt.

I respectfully dissent.

 

[JettaKnight]

Borrowing money for any degree if you can find ANY other way to get through school( ahem. . .like work) is stupid.

No, it's not stupid.

If you're getting a STEM degree, borrow what you have to get that degree as soon as possible. Don't deliver pizzas - take extra classes to finish a semester or two sooner.

Your earning power is so very much more with that degree that it is unethical to tell a high school graduate that they should flip burgers for five years (more?) and then go to college.

And if you can cut out one semester - isn't that better than working to pay for that semester?

YMMV.


It's better to do the math than follow the principles of a guy in Tennessee that gets rich from telling people what to do with their money.

 

[MCgrease08]

It's better to do the math than follow the principles of a guy in Tennessee that gets rich from telling people what to do with their money.

Dave Ramsey has helped create more millionaires than anyone walking planet earth today, but to each their own.

 

[firecadet613]

Dave Ramsey has helped create more millionaires than anyone walking planet earth today, but to each their own.

Agreed! We took his course and applied many of his philosophies and it has made a HUGE impact in our lives...so much so we pay it forward and will pay for others to take his course...

 

[JettaKnight]

Dave Ramsey has helped create more millionaires than anyone walking planet earth today, but to each their own.

For the most part I agree with his financial philosophy (I certainly can't argue that being debt free and living below your means is wrong), I don't agree with his cookie cutter approach. We've had this discussion many times before on INGO, so...





But, I'll just drop this here: https://julieroys.com/dave-ramsey-company-chris-hogan-sex-outside-marriage-ok-court-documents-show/

TL/DR: Dave makes his employees sign contracts forbidding premarital and extramarital sex. But it seems that only gets enforced on the hoi polloi female employees and his right hand man gets a pass. It's easy to maintain moral integrity in a company when it doesn't cost much, but when it's a key person and friend... eh... we can bend the rules.

Form your own opinion, but I don't care for him.

 

[Flash-hider]

I didn't catch anything in this new law about lowering taxes to help all of us save a little more.

 

[HoosierLife]

I took financial peace back in the day.

Every few years, I’ll teach a similar style class to my Sunday school class, The Homebuilders.

Getting out of debt, using a budget, basic financial literacy is all well and good.

But getting out of debt and building wealth are two different animals.

And I think what Dave says about paying off your home and his thoughts on life insurance are just plain wrong.

Buy term and invest the difference has worse returns than utilizing a max funded mutual cash value life insurance policy.

(Im an insurance agent.)

But Dave helps promote Zander insurance, who only sells term life. And he sells leads to agents, that only sell term.

So he is a little biased.

I think Term is fine and has its place. Shoot I think I have $3-$4M in term, so it’s not like I’m against it.

But BTID only works when people actually look at what the premium would be on a max funded mutual Whole Life policy vs term premium.

Then invest the difference between those 2 premium payments.

Doubt 90%+ are doing that.

And cash value life insurance is a federally restricted financial instrument.

Meaning the government only allows you to purchase so much, so you can’t take advantage of the system.

It’s also a product that all the wealthy, senators, banks, etc use to grow their wealth and pass it on tax free.

Much better than a risky 401k in my opinion.

Who knows what tax rate you will be at when you try to pull it out.

As for the home being your greatest asset, that just doesn’t work.

You’re talking about equity that you can’t access. Unless you sell it or take out a loan.

Both of which are arduous and based on your current financial status.

Here’s a life hack for you retired Ramsey-ites that have actually paid off your house.

How much is your social security check each month? $1500? $2500?

Whatever it is, take a cash out refinance on a 15 year loan where the payment is equal to your SS check.

You just got a 15 year advance on your social security payments.

Put that money into something safe and make your mortgage payments from that cash out refi money.

If you die within the next 15 years, you’re spouse will still have the cash to make the payments.

She will likely only have your SS payments after you pass. So her income will drop by 30-50% in many cases.

If you live 15 years, great! You just paid off your house again a low interest loan financed by the government.

Rinse and repeat.

And most likely, you’re kids are not going to want your home. So keeping it so can sell it as part of their inheritance is not always best option.

Life is simpler to just pay everything off and not take the time and resources to use the tax advantage the wealthy use, but I believe many are limiting their wealth building opportunities by listening to Dave.

Bottom line, have a budget, get rid of consumer debt, invest early (or now), and take advantage of the tax code.

For the lowest tax bracket, a max funded WL policy will yield you a 12% return over its life.

Not to mention the payout to beneficiaries are tax free.

Loans against the policy are tax free.

And loans against the policy do not make the cash value, that you are accruing interest against, to go down.

Meaning if you have $100,000 in cash value and borrow $50,000 for a rental property’s 20% down payment, then you are still accruing interest off the $100,000.

This is how you “become your own bank.”

Now you take the profit from your rent and use that to pay back your loan.

Or don’t.

You don’t have to pay it back. If you don’t pay it back, it will be taken out of the death payout.

And the loan is easy to take out. Call them up or email them a form. No financials needed, no credit pulls. Nothing.

With a max funded cash value policy, you never lose access to the 8th World Wonder of uninterrupted compound interest.

The only other product I recommend everyone max out are HSAs.

Tax deferred, compound growth, tax free usage, what’s better than that??

Only thing that comes close is a max funded CV life policy.

(I’d recommend Penn Mutual or Ohio National. I don’t sell these products, but make sure if you buy one that it is from someone trustworthy.)

I like the matching that many employers do with a 401k, but we’ve all been sold a bill of goods, putting our retirement and equity into 2 products we can’t access without a loan, a sale, or turning 59.5.

 

[Ingomike]

And they should have to contribute the entirety of their personal wealth to start to replenish the "Social Security Lockbox" they raided and put into the general fund years ago. Bastards.

Was there ever a “lockbox” that actually had money in it? My understanding is SS was always a pay as you go scheme, otherwise known as a Ponzi scheme…