The Social Security Administration COLA The Social Security Administration is set to announce the 8.7% cost-of-living adjustment (COLA). The 8.7% COLA will boost the average monthly Social Security retirement benefit to $1,814 next year, up $145 per month from this year’s $1,669 average benefit. The 8.7% COLA increase is the largest adjustment to the benefit in 40 years thanks to high inflation. And to everyone’s surprise, a decreased Medicare Part B premium comes with it. First, let’s focus on Social Security and how they calculate the COLA and then how those both receiving the benefit and delaying the benefit are affected. COLAs have been calculated based on the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers). After 1983, COLAs have been based on increases in the CPI-W from the third quarter of the prior year to the corresponding quarter of the current year in which the COLA became effective. The CPI-W measures the changes in consumer prices to which certain workers are exposed. All of that to say, we have seen higher inflation since the Covid-19 pandemic and Social Security must accurately adjust the benefit in accordance with that inflation. If you are currently claiming Now how does this affect those receiving the benefits? If you are receiving Social Security benefits then you will begin receiving the updated benefit amount including the COLA in January of 2023. If you are not currently claiming The good news is, everyone eligible for Social Security retirement benefits will receive credit for all of the Social Security COLAs that occur after they turn age 62, regardless of when they choose to start drawing their benefits. So, there’s no need to rush to file for Social Security before January, go ahead and stick with your financial plan Medicare Part B Premiums Decline When Social Security recipients got a Cost-of-Living Adjustment of 5.9% in 2022, they were met with a 14.5% increase in their Medicare Part B premium up to $170.10. This year, Medicare Part B premiums will be reduced by $5.20 to $164.90 a month. This is due to lower-than-expected Medicare spending for an Alzheimer’s disease drug. In a year with a negative stock and bond market, Social Security recipients can see a glimmer of light with the cost-of-living adjustment and decreased Medicare Part B premiums. Remember, annual income affects Medicare Part B premiums as well. If you have questions specific to your financial situation and how this might impact that, please feel free to reach out to your Whitaker-Myers Wealth Managers Financial Advisor.

Inflation: What is it? Inflation is a word that is not spoken of regularly in our social circles. It has been mostly used in financial professionals’ communication for the last 3 or 4 decades. That has changed over the past few years and inflation is now a common topic of conversation for most Americans and most of the world as well. Wikipedia simply states that it is the general increase in the price of goods and services in an economy. Occasionally, inflation can be isolated to specific industries, for a variety of reasons, but why all Americans are keenly aware of inflation is because food and energy have increased broadly by over 10%. These are expenditures that Americans incur weekly, sometimes daily, so we are well aware that inflation is here and affects us all because these are necessary expenditures, not discretionary ones we can avoid. Overall inflation has ticked down from over 9% but currently is 8.52%. Inflation: How does it work? The classic explanation is simply summarized as too much money chasing too few goods. So, the recent unprecedented spending of over $5 trillion dollars on COVID relief combined with supply chain issues from mandated shutdowns and new restrictions and regulations has sparked inflation. Discussing the merits and necessities of the extra spending and the increased regulations and precautions are not the intent of this article; however, the clear facts are that the money supply (m2) has sharply increased since 2020, and the supply of most goods and services have dramatically decreased since 2020. See the chart here graphing the money supply over the last 5 years. If arbitrarily printing money had no consequences, then why shouldn’t every American just get a basic income of $100,000 every year? The answer is obvious, the value of our money is worth less, and inflation is ignited. Margaret Thatcher said, “The lesson is clear, inflation devalues us all.” So, the temptation of governments is to throw around “free” money as a quick solution to problems, but in the end, the standard of living will decrease, even if you have a little higher income. Economist Milton Friedman said, “Inflation is taxation without legislation”, so consumers have less disposable income and it is more difficult to make ends meet. So if the government, in conjunction with central banks, could keep the money supply from increasing beyond pre-pandemic levels, that is the first step in controlling inflation. The second government action is facilitating an economy that encourages making goods and services readily available. This is commonly referred to as supply-side economics. Fiscal discipline and a strong supply of products are a proven formula for a healthy growing economy, with low inflation. Ronald Reagan proved this to work and helped pull us out of a difficult inflationary environment, in the early 1980's. One challenge that we still face is that the money supply is still way above pre-pandemic levels, so shrinking the money supply or quantitative tightening still needs to happen, which will also be a blow to markets. Many people focus on raising interest rates to squash inflation, which is part of the medicine that our economy has to take, but shrinking the oversupply of money is part of it as well and will keep the US dollar from losing too much value. What can I do about Inflation? Proactive steps can be divided into 2 broad categories: How should I handle my budget and How should I invest in an inflationary environment? So, we will address budgets first. The first and most obvious step is to not increase your budget, compounding the sting of inflation. This is not the time to add an extra streaming service or finance items that are "wants". Although having at least one car is a necessity for a family, adding another car or buying a new car in this market for vehicles should be avoided. After confirming that there are no unnecessary increases to your budget, then be diligent about looking for ways to decrease your budget. Look at eliminating some subscriptions, start carpooling, and shop for groceries and consumable items at lower-cost grocery stores and dollar stores. Be creative, if you truly want to trim the budget somewhere, you can find a way. Also, if you are paying extra on a fixed-rate expense, like a mortgage, now is not the time to be aggressive in paying the balance down. You are actually paying your mortgage at a discount, because inflation can’t swell that monthly cost, like all other new purchases in our budgets. For items that have variable rate borrowing costs that are going up, those should be scrutinized and you should try to apply some savings or “found money” to those payments. Another way to potentially fight rising prices is to sell items around your home that you no longer need or use. Selling items online or doing an old-school garage sale is a way to add some extra dollars to the cash flow. Lastly, looking to work overtime or an extra side hustle can also be an effective way to address the dent that inflation is putting into your budget. The second phase of dealing with inflation is deciding if you should invest differently. This is a trickier one and not quite as obvious or as much of a science. Two principles to apply are to stay diversified and not abandon your investment plan if you were already regularly investing, pre-inflation days. In very difficult stock market environments, having some non-correlated assets might make sense for you. Typically, bonds are not as correlated to stocks as they have been recently, so traditionally having some bonds, particularly for shorter time horizons is a good idea. In the last year, bonds have not provided the safety that they traditionally have and bonds are currently correlating with stocks, which is down. I Bonds, REITs, Structured notes, Commodities, and Treasury Inflation-Protected Securities (TIPS) are examples of things you might want to learn more about. If you are a client of Whitaker-Myers Wealth Managers, your Financial Advisor would be more than happy to discuss your accounts and concerns with you. If you are not a client, please feel free to reach out to one of our Advisors and we would be happy to help you in feeling more confident about your retirement planning and saving. If you have cash sitting in a bank account above your Emergency Fund and are wondering if you should invest it, that is a very good question and one that can be specific to your goals and risk tolerance. Dollar-cost averaging is a great way to buy into the market and get the benefits of buying in over a period of time so that might make sense for you. If you want to hold off on investing it at all until the market isn't as volatile, that might be okay as well but just know that if that is money you are saving for longer-term goals, do not let your emotions get the best of you or overthink it. You will likely not want to wait too long to get it invested. This is because although it is painful to go through an inflationary environment that is disrupting markets, you likely still want to take some risk and be invested in the markets so that you still have a chance to beat these high inflation rates. If you sit in risk-free cash, CDs, or treasuries as a permanent strategy, then you are guaranteed to lose purchasing power. Although there is no magic pill for investors, it is important to seek out your advisor and talk through your current and future financial picture.

Why Charitable Giving Should be a part of your financial present and future As an investor, it’s up to you to decide what is important concerning your investment strategy. In all areas of life, decision-making boils down to Knowing your why. If your why includes giving toward a local non-profit or church, then charitable giving should be a part of your financial plan. The Bible offers a helpful illustration in Luke 8:1-3, where we see an account of three generous women who came alongside Jesus and his disciples as financial partners – funding the ministry. The book “Gospel Patrons” by John Rinehart, expounds on this idea as it highlights people throughout history whose generosity helped to change the world. I spent the last nine years working for a non-profit outreach ministry and saw first-hand the impact of charitable giving. Generous donors are the backbone of any non-profit organization and can have a high level of impact on a community. This article aims to give you just a snapshot of the benefits of including charitable giving in your plan to achieve a holistic financial strategy while supporting critical work. Bigger Impact with a DAF It’s always important to have a plan. Planning your Charitable giving can allow you to increase your impact by avoiding unnecessary taxes on your charitable funds. One way to do that is through a Donor Advised Fund (DAF). A DAF is a way to donate appreciated stock, and avoid paying capital gains tax on the money you’d like to donate. You receive an immediate tax deduction of up to 30% of your adjusted gross income for any gift of appreciated securities. That list includes real estate and mutual funds in addition to other assets. By simply donating long-term appreciated securities (securities held for more than one year) to a DAF, capital gains are eliminated, your marginal tax is decreased and more money will go directly to your organization of choice. The DAF then disburses funds to your designated tax-exempt organizations, and this can of course be updated as needed. A tool known as a Designated Fund is similar to a DAF, but it designates funds to one specific organization. Utilizing either a Designated fund or a DAF allows you the peace of mind that you are making an impact, and saves you both tax dollars and time. If you want to make an impact even after you’re gone, a Charitable trust is a great way to set up indefinite giving, so that your impact can be felt for generations. It’s important to note that once money is placed into charitable accounts it can only be used for giving. Consult with a tax professional to see if a charitable account might be right for you. Benefits of Giving If you aren’t ready for a DAF, you can still make an impact by giving cash. Churches and non-profits benefit from your charitable giving even in modest amounts. You can also benefit financially from giving, especially with quarter four drawing near, it’s important to be thinking about how today’s dollars affect your tax status at April’s filing deadline. If you plan to itemize your deductions, you can reap real tax benefits through your charitable giving through the end of the year. There are a variety of options to fit your needs, but if you’re at RMD age you could use a Qualified Charitable Distribution (QCD) from your taxable IRA as another beneficial mode for giving. Regardless of your income level or life stage, it’s important that you know your “why?” What is your “why?” At Whitaker-Myers, we care about our clients and their goals so please reach out to your Financial Advisor or Tax Professional today to get started on your financial and charitable goals.

Social Security is a benefit nearly 1/5th of the country is currently receiving and the majority of working Americans pay into it. How is something that affects such a large percentage of the population so easily misunderstood and complex? The goal of this article is to deliver the fundamentals of Social Security and develop a much stronger communication with your advisor around the topic. With all that being said, let’s jump right in. What is Social Security? In the midst of the worst economic downturn in modern times, the great depression, President Roosevelt signed the Social Security Act in 1935 that would forever change retirement. Social Security, known as the Old-Age, Survivors, and Disability Insurance (OASDI), is a federal program designed to provide partial income replacement to qualified adults, their spouses, qualifying ex-spouses, those who are disabled, and under special circumstances, children. Social Security encompasses multiple social insurances and social welfare programs, for the purposes of this article, I am going to focus on the issuance of Social Security benefits. Who Funds Social Security? So, who is funding Social Security? Well, you, the worker (unless you have a covered pension and are exempt from paying into Social Security). Social Security is a pay-as-you-go system, and the payments are made through a payroll tax. The payroll taxes are known as the Federal Insurance Contributions Act or “FICA”. FICA taxes are a tax of 7.65%, comprised of a 6.2% tax for Social Security funding and another 1.45% to fund Medicare. Of course, your employer must also match your contribution, and if you are self-employed, you must pay FICA taxes both as the employee and the employer (so go ahead and double up that 7.65% if you are running your own business). In fact, about 90% of the current funding of Social Security is made through payroll taxes. The other 10% is made through a combination of things: taxation of Social Security benefits being paid out to retirees, and interest earned from the current Social Security trust fund (where all the extra money accrued from payroll taxes exceeding payable benefits are stored). How Does One Qualify for Social Security? To fit the “fully insured” definition of Social Security, an individual must obtain 40 credits throughout their working lifetime. An individual can earn up to four credits in one calendar year. To earn a credit, the individual must have met the earnings threshold ($1,510 for 2022). These thresholds are updated annually for inflation. Do they Ever Stop the Taxing?!?!? Yes, the Social Security tax ends on your wages once you have hit $147,000 in earnings for the year 2022 and this number is adjusted annually with inflation. On the flip-side of this coin, because Social Security taxation caps wages for the payroll tax, they also have a cap on the maximum monthly payment one individual can receive. Now that we understand the fundamentals of Social Security benefits, let’s look into how your benefit is calculated and all of the fun with claiming a benefit. How is the Benefit Calculated? The Social Security Administration actively tracks your income (as well as indexes it) and the years you have paid into the program. Social Security then uses the 35-highest paid years of your working career to determine your average indexed monthly earnings or “AIME”. From your AIME, Social Security arrives at your Primary Insurance Amount or “PIA”. The primary insurance amount is the monthly amount that an individual can claim at their full retirement age. If you are curious what your full retirement age is, enjoy this not-so-complex graphic: Reductions and Increases to the Benefit Let’s look at a fictional character for this example, his name is Garfield. Garfield has had an excellent career as an electrician and was born in 1960. Garfield is now 62 and wants to begin planning his retirement. He downloads his Social Security statement and Social Security states his primary insurance from his highest indexed 35 years of earnings at age 67 is $2,000 a month. What Happens when Garfield Claims Early? Garfield can claim as early as age 62. Claiming Social Security early will permanently reduce the monthly primary insurance amount “PIA”. Garfield will receive a reduction in the following amounts: For every month he takes Social Security early within 36 months of FRA, his benefit will be reduced by .56% up to a maximum of 20%. For every additional month beyond 36 months, the benefit is reduced by .42% for up to 24 months for a maximum of 10%. The maximum reduced benefit will leave him with 70% of his PIA at age 62. What Happens when Garfield Delays his Benefit? Delaying Social Security after FRA will add an additional 8% annually to Garfield’s benefit. If Garfield, with an FRA of 67, delayed receiving Social Security until age 70, he would receive a benefit of 124% of his PIA. Garfield’s Social Security Amounts would look like this: Claiming Early Vs. Delaying Garfield has a tough decision in front of him regarding his Social Security, he likes the idea of claiming later for an increased benefit, but is worried that no male in his family has lived past the age of 76, and he could be leaving money on the table… (and that is why claiming Social Security needs to be decided and based upon each individuals’ financial goals, family health history, and retirement planning.) Garfield decided to pull the trigger on claiming benefits as early as he could at age 62 and take the reduced payout of $1,400. If Garfield would have waited until his full retirement age, 67, to claim the benefit, his breakeven point would be age 77! At that point, claiming at age 67 becomes a better strategy than claiming at age 62. If Garfield defied the odds on his family’s health history and lived until age 95, that would be a dollar amount of $222,729 that he would be giving up throughout his retirement years by claiming early at age 62. Working while Collecting Social Security Early retirees may have their benefits cut if they exceed the earned income threshold ($19,560 for 2022). The benefit will be reduced by $1 for every $2 above the threshold before an individual reaches FRA. For the year in which FRA is obtained, the benefit will be reduced by $1 for every $3 above the threshold ($51,960 for 2022). There are no earned income limits once FRA is obtained. Garfield was such a great electrician during his career, and like a lot of retirees these days, he decided to optionally work part-time to keep himself in motion. He started his own electrician business and did 5-10 house calls a week, Garfield was able to make $30,000 in his first year of retirement doing house calls, while only working 2 days a week (the rest he spent fly fishing). Because Garfield is below the FRA, the benefit will be reduced by $1 for every $2 above the threshold of $19,560. Garfield will have his annual Social Security benefit reduced from $16,800 to $11,580 for the year because he did not know of this earned income limit☹. Who Can Claim the Benefit? This is a common question we see as financial planners, while it can get overly complex, the typical claims to one’s benefits we see are the spouse (can claim 50% of the benefit at their FRA), an ex-spouse who was married to the fully insured participant for at least 10 years, and a surviving spouse who gets 100% of the benefit at FRA. If you do like getting into the weeds, here is a complex chart to go ahead and look through. Taxation of Social Security This is another topic that can get complex very quickly. I will stay short and sweet on this one, in 2021 if you filed single, the benefits are not taxable below an income of $25,000. Up to 50% of the benefits are taxed between $25,000 and $32,000 and up to 85% of the benefit is taxed with income above $32,000. If married filing joint, the benefits are not taxed with income below $32,000. Up to 50% of the benefit is taxed when income is between $32,000 and $44,00 and up to 85% of the benefit is taxed above $44,000. Here is the formula that determines how much your Social Security is taxable: ½ of Social Security Benefits + Adjusted Gross Income + Nontaxable Interest = Combined Income. Meet with your tax professional to discuss missing any Social Security “bump zones”, when extra income in retirement makes more of your Social Security taxable. Does Social Security Receive a Cost-of-Living (COLA) Adjustment? Yes! This is why Social Security is often referred to as the best annuity option in the world. I won’t go into detail on this, but I have already written an article if you are interested in reading through how the COLA works. Believe it or not, a lot of what this article discusses only scratches the surface of how complex Social Security can get in certain scenarios. It is important to understand the fundamentals of claiming Social Security and how it will impact your retirement income. Here at Whitaker-Myers, we are proud to have the heart of a teacher and continue to educate on this topic to our beloved clients. Social Security is something that should be reviewed and analyzed with your financial planning team prior to implementation. Please review with your financial professional/professional tax advisor.

Imagine living (in career terms) in a world where money is the focal point of everything. It’d be very easy to become vain and self-absorbed extremely quick. It’s one reason why you can’t attend a Financial Planning conference and look throughout the parking lot and witness a sea of luxury car brands. I promise you it’s not because they are all doing so well financially, but rather as my friend Dave says, they’re driving those cars to impress someone at a stop light or an industry conference they’ll never meet. Of course, I don’t have issues with luxury cars, but the point is valid: my vehicle is often bought for the wrong reason. It’s why one of the hardest things we must do is merge the following two issues: the Bible instructs us to save and invest and it instructs us to have a Kingdom mindset. A client once asked a Financial Planner I knew if their home, well into the seven figures in value, was too expensive for a Christian. The heart of his question was, “should I sell it because I feel guilty?” The Financial Planners' response was incredible! He answered, “Have you asked God what you should do with it?” The client responded that he had not and sought the Lord in prayer around this decision. He decided to sell, and a strange thing happened. The house wouldn’t sell. No one was interested in it nor could afford it. So, the family decided to begin figuring out ways they could use this impressive piece of architecture to further the Kingdom of Christ. Well, wouldn’t you know, this home would become a ministry tool over the next ten years like no other. When the family was willing to give up the house, God was ready to start using it for His glory and our amazement. My desire to be a Kingdom Advisor is centered around James 3:17, which says, "But the wisdom that is from above is first pure, then peaceable, gentle, willing to yield, full of mercy, and good fruits without partiality and without hypocrisy." God's word is sufficient in all areas of my life, including finances! Through this worldview and my extensive work with Dave Ramsey, I believe a faith-based Advisor will be able to advise families better about what the Bible has to say regarding finance. There is so much prescriptive teaching in the Bible that we can learn from to make a more significant Kingdom impact. The need certainly is great. In America, 7 out of 10 Americans are living paycheck to paycheck, and it isn't much better in the church. We know from recent trends that while wealth is growing in America, it's concentrated in the hands of a few. That’s not to say anything is structurally wrong other than our poor financial habits. Most 65-year-olds today are not financially independent, and the assets they own, they haven't even directed to who would receive them when they die (no will), let alone thought about how they could make a Kingdom impact with them. Additionally, most Evangelical Christians in America don't have a Biblical worldview, which extends to their views about money. Because of this, many are not tithing to their local church, making it harder for the local church to fulfill its mission to make disciples. I don't say this to say we are defeated. Quite the opposite! This is why Kingdom Advisors like those at Whitaker-Myers Wealth Managers are so important. Just as the blood of the Lamb has redeemed us, we, as Kingdom Advisors, are here to redeem money and finance in the church through the wisdom of the Bible! As a Kingdom Advisor, it is our (Whitaker-Myers Wealth Managers) commitment to our clients, our community, and Christ that we live our lives from a Biblical worldview with a passion for delivering consistent biblical counsel and wisdom as a competent and skilled professional. Additionally, our team is qualified and becoming better prepared through designations like the CKA® (Certified Kingdom Advisor) in charitable giving and life counsel so that our impact can be multiplied across my hundreds of clients. As a Kingdom Advisor, we teach five basic principles of money, which are: Spend less than you earn Avoid the use of debt Build liquidity and margin Give generously Set long-term goals The underlying theme within all the principles is the mindset that God owns it all; thus, we make decisions with that in mind. This consistent process allows our clients to understand our advice clearly and as Dave Ramsey always says, “to be kind is to be clear.” It’s often said that to fail to plan is to plan to fail. However, when planning is done right, it helps our clients create consistent behavior. I’ve often said the best book for financial planning is the tortoise and the hare because one needs to be consistent over a long period like the tortoise. I, like you, am a fallen creature with many flaws. My wife would be the first to confirm this. However, as we continue to pray for you, our valued clients, would you continue to pray for us? Pray that we, through the power of the Holy Spirit and the Word of Christ, can add value to people's lives through the advice we give, the investments we make, and the impact we all together can have for the Kingdom of Christ.

What are rainy days? You’re in the midst of paying off your debt and tackling it with a speed that is even impressing you. Your debt snowball is getting knocked out one after the next and you have the momentum to throw even more at it. But then, BOOM. Storm clouds are on the horizon. And things look like they are going to get nasty. Dave Ramsey talks and uses the dark clouds of a storm as a metaphor for unsure times ahead in your future, and the uncertainty that they could potentially bring. When we talk about storm clouds that could impact your overall financial well-being, we usually are referring to big, life-changing events. These events include the loss of your, or your spouse’s job(s), a move (usually not lateral in change), the birth of a child, etc. So how do you plan for these life events, if you are still in the early baby steps? You prepare for the rainy days ahead. This means you start putting more towards your savings, typically what you would put towards your debt snowball, but now postponing these additional payoffs. You can do this by continuing to add to your already established Emergency Fund of $1,000 (Baby Step 1), or create another savings account at your bank and title it “Rainy Day Fund” or something similar so you know what exactly this fund should be used towards. Normally we would not suggest delaying paying off your debt, but if the “storm clouds” look that daunting and heading your way, the best way to protect yourself (and your family) from going into further debt, is to build a safety net. How much should the safety net be? This is a number that is going to be specific to each individual’s scenario. However, we do not suggest jumping to Baby Step #3 – increasing your emergency fund from $1,000 to 3-6 months of funds. Dave Ramsey’s and our suggestion for this is similar. Continue paying your minimum payments towards your debt items, however, instead of taking your additional income and applying it to your debt snowball, you take those dollars and put them in your “rainy day” account. Just squirrel away that money until the “storm clouds”, i.e., troubling situation, have passed. How to recognize the “storm clouds” Again, these “clouds” may look different for each person’s situation. A good rule of thumb is going with the “writing is on the wall” theory. If there is a move coming your way, basically you are in the process of selling/under contract. If you are expecting a child, start transitioning how you save once this is confirmed by your doctor. FYI - Kids can cost a lot, and always seem to have sticky hands. If you think there may be a chance of a job loss because you’ve had multiple meetings with your boss, your company has been bought out, downsizing, etc., you will want to start saving in case there is some time you will be without consistent income. The storm clouds have passed This means one of two things have happened: 1) the storm really wasn’t an issue and you are glad you had this rainy-day fund to help supplement income as needed. Or 2) it was all precautionary, and thankfully your possible issue or situation did not happen, and there was no need to dip into this extra reserve. So now what do you do with it? Simple, throw all of it at your debt and tackle your debt snowball! As we said, you’ve been keeping up with your minimum payments, so now take everything that you have been safe harboring if needed, and throw a chunk at it! Who knows, you could even knock a few debt items out with it all! Regardless of what happens with the storm, it is a win-win. Because you will be taken care of since you prepared ahead of time if there was a storm, and if the clouds pass without any damage, you now have that to start paying things off again. If you are currently trying to pay off debt, or “see a storm on the horizon” reach out to your Financial Advisor to have them connect you with our Financial Coach!

Healthcare has undoubtedly been a hot topic in the last few years. However, for those of us in the retirement planning industry, we’ve been planning around and for healthcare for generations. Most individuals will become eligible for their health insurance in retirement at 65 through Medicare. You’ll choose between multiple options in Medicare, and what those options cost each month depends on your taxable income in retirement. Let’s dive into some of those numbers. Medicare Part A Your Medicare Part A is your hospital insurance, covering your inpatient costs at a hospital or other inpatient facilities. A reminder that inpatient care is the type of care that is a result of a condition that would require you to be placed in a hospital. Most individuals that achieve 40 credits (10 years) in Social Security will get Part A free; however, if you don’t qualify for Part A through your payment into Social Security, you can still make monthly payments to receive it. The cost will depend on achieving 30 – 39 credits in Social Security or fewer than 30 quarters. The person with 20 quarters in Social Security will pay more than the person who has 31 quarters, and both are paying more than the person who has 50 quarters, which consequently, as mentioned above, receives Part A free. Medicare Part B Your Medicare Part B helps to cover your doctor's visits and other types of outpatient care. Medicare Part B, unlike Part A, has a monthly premium that you’ll owe, and it was based on your income two years ago. This is called the Income-Related Monthly Adjustment Amount (IRMAA). For example, in 2022, your IRMAA is adjusted based on your reported income in 2020. The standard Part B premium in 2022 is $170.10 each month. If you reported more than $182,000 (Joint Married Return) or $91,000 (Single or Married Separate), your premium would increase to $238.10 monthly. It can be adjusted to as high as $578.30. Check with your Advisor to understand where your income could place your Medicare Part B monthly premiums. Medicare Part C Medicare Part C plans are often called Medicare Advantage Plans, which are sold in the private marketplace by Health Insurance Advisors, such as the Advisors at Whitaker-Myers Benefit Plans. Almost all (about 89%) include prescription drug coverage, and the average premium for a Medicare Advantage Plan is $62.66 in 2022. Your premiums will not change based on your income for Medicare Part C. Medicare Part D Medicare Part D plans are exclusively designed for prescription drug coverage and, like Part C above, can be sold by private insurance companies like Whitaker-Myers Benefits Plans. The average plan premium in 2022 was $47.59 and can be adjusted based on your income. You will pay your plan's premium if your income is $182,000 or below (Married Filing Joint) or $91,000 (Single or Married Filing Separate). It can then be increased from $12.40 / month to $77.90 / month based on how much you exceeded the abovementioned income. Planning Opportunities Around Health Insurance As noted above, $182,000 and $91,000 are the thresholds you don’t want to cross in retirement from an income perspective because they’ll create higher premiums on your Medicare costs. But imagine you have a year in retirement you need to take a significant distribution to pay one-time expenses, like a new roof, purchasing an automobile, taking the trip of a lifetime, or a myriad of things that could push your income above those thresholds. Are you just out of luck? The answer comes back to how well you planned. If you were consistent with Baby Step 4, putting 15% of your income away in retirement, you most likely have saved enough. However, Baby Step 4 is not just about how much but also about where you save, meaning you should have been allocating in your 401(k) up to the match, and everything else should have gone into your Roth IRA (up to annual limits). If done correctly, your asset base is diversified across your 401(k), which will most likely count against your income when withdrawn each year in retirement, and your Roth IRA, which will not count against your income in retirement. This can help save thousands of dollars yearly in unnecessary taxes and increased Medicare payments. This is not about saving more money, per se, but rather saving it in suitable types of accounts. Even if you’re in your 30s, 40s, or 50s reading this and thinking I’m a ways off on paying for Medicare, you’d be wise to start planning for the impacts of how your assets will save you on Medicare costs by being intentional in executing Baby Step 4 to its desired outcome, 401(k) and Roth IRA together, not just 401(k). Finally, for those retiring pre-65, I wrote an article last year about the myriad options you have until you turn 65 and become eligible for Medicare. These are all things when creating your financial plan; your Financial Advisor will be incorporating into your projections, so you can see what your costs will look like, pre-65 and post-65, for this essential part of your retirement planning. Please get in touch with us today if you have additional questions and want to ensure you’re not spending over the Medicare income limits.

Growth, Growth & Income, Aggressive Growth, International & Mutual Funds…Why? If you listen to Dave Ramsey enough you will have heard these four asset classes mentioned when he talks about investing. Dave stresses diversifying across these four asset classes and using mutual funds to diversify across many different companies. We could not agree more. In the article below I will define each of these and then discuss a few reasons why we do this. Growth When Dave talks about growth companies he is specifically talking about Large Growth companies. These companies are focused on growing the market share of their business and thus increasing their stock price. Instead of satisfying shareholders with dividends (share of profits) they take those revenues and re-invest in the company. Amazon, Apple, Tesla, and Google are a few examples of Large Growth companies. Growth & Income Growth & Income is often referred to as Large Value. A value company satisfies its shareholders by issuing dividends to shareholders. A company with a good dividend yield will create value for its shareholders without necessarily rapidly growing its stock price. Aggressive Growth Aggressive Growth companies are defined as companies in the mid-cap and small-cap areas that have considerably less market capitalization than large-cap companies. Market capitalization is the value of a company. To get the market capitalization of a company you simply multiply the current share price by the number of outstanding shares. Large-cap companies have a market capitalization of $10 Billion+, mid-cap companies have a market capitalization between $3 Billion and $10 Billion, and small-cap companies have a market capitalization of less than $3 Billion. Aggressive Growth companies typically carry more risk because the companies within this category are not as established as large-cap companies. At the same time, smaller companies tend to have a higher opportunity for rapid growth. International International companies are exactly what it sounds like…International. For us, in the United States, this means companies that are wholly located outside of the United States. One common mistake investors and even some advisors (not Whitaker-Myers) make when choosing a fund for their international exposure is choosing a “global fund”. Why is this a mistake? Because, unlike international funds, a global fund also includes companies in the United States. This means you are not truly diversifying outside of the USA when you pick a global fund and coincidentally skew your asset allocation. Mutual Funds A mutual fund is a collection of companies built into one investment. While individual stocks have their own share price, a mutual fund also has a price to buy into the mutual fund. When you buy into a mutual fund you are subsequently purchasing every stock within that fund. Stock mutual funds hold many different stocks and every mutual fund has its own investment strategy. There are even bond mutual funds, commodity mutual funds, real estate mutual funds, and more. There are about 8,000 mutual funds to choose from. At Whitaker-Myers Wealth Managers we have very specific criteria to filter through the clutter and narrow down these 8,000 funds to about 30 that we would consider to be relevant investments for our clients. The advantage of using mutual funds in investing goes back to the broad diversification of assets. If you have a portfolio with four individual stocks in it and one of those companies file for bankruptcy then your investment immediately loses 25% of its value that you will never recoup. On the other hand, if you have a portfolio with 400 companies and one files for bankruptcy then the negative impact on your overall performance is much less. Diversification As the title says “Smart Investors Diversify”… First, take the four asset classes defined above (Growth, Growth & Income, Aggressive Growth, International). Each of these asset classes grows at different rates in any given year. One year, Growth might be outperforming all other asset classes which has been the case for several years until now. Right now, even with the stock market down, Growth & Income stocks are performing the best (or the least bad). So, let’s take all our money and buy dividend stocks right? Wrong. Trying to time the market is a fool’s errand. The secret is time in the market, not trying to time the market. If you try and guess which asset class will perform the best at any given time then a 10% return could start to look like 5% and over a long period of time this can have a monumental impact on the final value of your portfolio. Instead, buy a little of everything and let it grow over a long period of time. Using these four asset classes we can allocate 25% to Growth mutual funds, 25% to Growth & Income mutual funds, 25% to Aggressive Growth mutual funds, and 25% to International mutual funds. Your financial advisor at Whitaker-Myers Wealth Managers can build a portfolio custom-tailored to your needs that incorporates broad diversification across these four asset classes. This is a great strategy for investors looking to maximize the potential growth of their portfolio while lowering the risk of being too heavily concentrated in individual companies or asset classes. Keep in mind that there still is risk involved in all investments and you should speak to your advisor before attempting to implement this or any investment strategy. If you have questions about anything covered in this article, reach out to one of the Advisors here at Whitaker-Myers!

We've got baby fever at Whitaker-Myers Wealth Managers! Our excellent Financial Coach, Lindsey Curry, and her husband, Chris, welcomed their second baby girl into the world this last week. I lobbied for the naming of Jenny-Mark, after their favorite Smartvestor Pro; however, they made a more logical choice. Fidelity recently did a study that said the cost to raise a child in today's world is $233,610. Yikes! Sometimes I get frustrated with those surveys because I'm sure it scares people away from having kids (or more kids), which, as many of you know, are a tremendous blessing! Fidelity's study states that your child's housing expense towards the aggregate $233,610 is $67,747. I don't know about you, but I live in my house regardless of the child. You might say, "don't you buy a larger house because of your family?" Some people might, but not me – I'll make our housing situation fit our children! My father-in-law grew up with five siblings in a three-bedroom house. You can make it work, friends! My friend on a national radio show has a larger home than most churches, and his kids are all grown. The point is that the financial side of raising children is not that much of a burden, if you're following the Baby Steps. It just requires excellent planning. So, in honor of our fantastic coach Lindsey, who helps many of our clients, let's walk through the five financial moves you should make when having a child. Get Term Life Insurance If you've been putting it off for whatever reason, now is the time to get this wrapped up. Term life insurance is extremely cheap and will provide your family with the financial security they'll need if you're gone. You'll probably need about a thirty-day window to get this put in place, so don't wait until the baby is born to make this happen. Additionally, we recommend you get ten times your income in life insurance. Suppose your income is around $50,000; you should buy about $500,000 of term life insurance. You also need to pick how long you'll have this life insurance. If you're having your last child, a 20-year policy may work, but if you're having your first child, you should consider a 30-year policy. Additionally, have your Financial Planner run your retirement projections because perhaps you'll be self-insured in 20 years, which may play into your decision. Get Your Will / Trust Completed I try not and get sentimental too often; however, when I held our firstborn daughter for the first time, I couldn't help but tear up. My wife and I had brought this wonderful blessing into the world, and now she's our responsibility. However, we serve a sovereign God; sometimes, His plans don't intersect with our projections. Therefore, if my wife or I are not going to be able to care for this child unless I draft a will or trust, the state will decide who cares for this child. Depending on family dynamics, there may not be a wrong choice, but family infighting can happen when one side of the family wants to care for the child while another side has the same thoughts. Be specific and make sure, if you have great relationships on both sides of the family to give the family, not providing daily care to the child, particular abilities to take them on family vacations and other fun trips, just as they would have done if you were still alive. Did you know: your Financial Advisor can help you get your will done with our national attorney partners. Budget Update Time If you're strong financially because you're in Baby Steps 4, 5 & 6, and you've been slacking on the budget, it may be time to bust out the pen and paper or EveryDollar and begin looking at how your budget may change. Especially considering inflationary trends that have rocked the "baby market," this is especially prudent in 2022. Fidelity, in their study stated, over the child’s lifetime you’ll need to prepare for the following expenses in the following amounts: Food - $42,050, Child Care & Education - $37,378, Travel - $35.042, Health Care - $21,025, Clothing - $14,017 and Entertainment - $16,353. Many of these numbers can be outright eliminated based on your situation; for example, if you're going to stay at home with the child, I would argue childcare becomes negligible; basically, your only childcare may be date night events. However, you'll have new expenses with the child, and it's a good idea to get them on paper, on purpose! Did you know as a client of Whitaker-Myers Wealth Managers, you have access to EveryDollar for free? Contact your Financial Advisor today! Decide on Childs Investment Vehicle Starting to save for your child as early as possible will help you win the compound interest game. Saving less early is easier than saving more later. For example, if I start saving $100 / month when the child is born, then by the time they're 18, with a 10% return, we'd estimate them to have around $60,000. However, wait until they're six years old (not even half the time til they are 18, which of course, would be 9), and the expected savings amount more than doubles to $217 / month to achieve the same $60,000. Save early! There are three types of accounts you can utilize to save for your child, and below is a brief description of each. UTMA (Uniform Transfer to Minors Account) This type of account has no limit to how much you put into it, but when money is put into this account, it is considered the child's, even though you still control it, and thus you must follow the gift tax laws, meaning you can only gift $16,000 / per year, per person. If you're married, you could give $32,000 to each child each year. The UTMA has no tax breaks on contributions; however, you get $1,100 of tax-free growth each year and then $1,100 of growth taxed at the child's tax rate, each year. Additionally, you can use the money for any reason, at any time, as long as it's used for the child's benefit. At age 21, in most states, the money, if any is left, you'll stop being in control of the funds, and the child now retains control. 529 Plan Each state has a different 529 plan, and each plan has its nuances; however, if you're in a state that has state income taxes, you should check to see if your state gives you a tax break, on your state return, for 529 contributions. For example, Ohio and Georgia allow you to deduct $4,000 per beneficiary yearly from your state return for monies put into the 529 plan. South Carolina allows a full deduction based on what dollars are contributed to the 529 plan. Florida and Texas don't have tax deduction benefits because they don't tax income in the state. All 529 plans allow the funds to grow tax-free and be withdrawn tax-free as long as they are used for qualified educational expenses. One drawback to the 529 plans is their limited investment options, which is not the case in the UTMA and ESA. Educational Savings Account (ESA) This one is a little more tricky because your income needs to be below a threshold of $110,000 if you're single and $220,000 if you're married. You are limited to saving $2,000 per year, which works itself out to $166 each month (see the example above how much that can grow to), and the money grows tax-free and can be withdrawn tax-free if used for qualified educational expenses. An ESA's investment options are unlimited, providing one significant benefit over the 529. However, you don't receive a state income tax deduction as you do with a 529. Someone in Texas, Florida, or Tennessee, may lean towards the ESA if they qualify. In contrast, someone in Ohio, Georgia, South Carolina, or any other state with an income tax must review their situation to determine if they should use a 529, ESA, or UTMA. Check Your Employer Benefits This may be an excellent time to review your employer's benefits. Things that were not valuable to you in the past may now be precious. Such as either a health or dependent care Flexible Spending Account. You'll be making extra trips to the doctor, even with a healthy baby, so you may consider using the FSA account for those additional doctor visits. If you're going to have someone watch your child, you should consider using the Childcare FSA to pay your childcare expenses. Further, if your health insurance provides you with a Health Savings Account, that is an even superior solution to the health FSA because you can roll the funds over yearly. Additionally, your employer may offer you disability and life insurance benefits that, while they probably shouldn't be your primary option, are certainly better than nothing and typically require no medical checks or exams. Get Your Whitaker-Myers Wealth Managers Swag We love when our clients have children. It certainly creates some unique planning opportunities, but it may be one of your most important jobs while on Earth: being a parent! We love to come alongside and help parents be great stewards of teaching their children about money. While they are under the age of three, there may not be much teaching, so let's at least help them look cool while they're that young. That's why we'd ask you to let us know when you have a baby. We'll send you two fantastic parenting gifts. The first is a copy of Dave Ramey's and Rachel Cruze's Book, Smart Money, Smart Kids, so when they do become old enough, you can help them become a Financial Peace Baby. The second is this awesome shirt (size: six-month-old) titled "We Love Small Caps," an excellent play on small companies we invest in and small kids!

The Basics of Target Date Funds If you have a retirement plan through work (401(k), 403(b), etc) and are putting money into it, it’s very likely that you currently have money in a target date fund or have at least seen them on your list of fund options. More often than not when doing the initial enrollment through your HR department or online, the default selection is to put everything into a target date fund that corresponds with your anticipated retirement age. Sounds pretty good right? When do I turn 65? Great, put everything into the target fund that most closely matches that age. These options have become increasingly popular. According to CNBC, it is estimated that $1.8 trillion dollars are currently invested in target date funds, and 80% of all 401k participants are in these funds. But is that really the best way to invest? First let’s break down what exactly these investments are made of. What is a Target Date Fund made of? A target date fund is like an onion, layers on layers of investments underneath the surface. When you put your money into a target date fund you get a little bit of everything. The breakdown of a 2040 fund from one of the largest investment providers looks like this, and keep in mind this is for someone retiring in 18 years. 45% US stock 42% International stock 10% bonds and 2.38% cash. Performance of Target Date Funds vs All Index Portfolio Diversification is a good thing and this is diversified. But how does this compare to other types of portfolios such as one that Dave Ramsey would recommend? Well, as you probably know, the market has had a bad year, currently, the S&P 500 is down 17.55% YTD. So, what did this target date fund do? It is down 17.56% YTD. The 10% exposure to bonds is part of the portfolio for downside protection and even with that, it has underperformed an all-stock portfolio. Given the underperformance in the International markets, it is easy to see why there would be some variation in return. So, I decided to compare the target date fund with an all-index portfolio 25% growth, 25% growth and income, 25% aggressive growth, and 25% international. I used all index options for each category. The results in the chart attached to this article show an initial investment of $10,000 into each option 10 years ago. The blue line that says ‘benchmark’ represents the specific target date fund that I referred to previously and red line that says ‘portfolio’ represents the all-index portfolio also mentioned previously. The difference in returns over the last 10 years was 11.5% for the all-index portfolio vs 9.08% for the Target Date fund. In final market value terms $29,716 for the all-index portfolio and $23,856 for the target date fund. Target date funds have another quality that makes them a unique product. These prebuilt investment vehicles make no attempt to conform to the risk tolerance of the individual investor. Some investors have no problem with market volatility, others lose sleep over market downturns. Unfortunately, if you are in a target date fund, you don’t have the option to remove or add risk to the portfolio. You get what is packaged into the specific fund that you choose. Having a portfolio that matches your risk tolerance can have a huge impact on reaching your retirement goals. It prevents investors from jumping ship when markets get volatile. What are Target Date funds good for? Can your Advisor manage your 401(k)? To clarify, I do not hate target date funds. They are a great way to set it and forget it. If you do not have the expertise and/or the desire to research and rebalance your portfolio on an ongoing basis, they do all of that for you. Studies have shown that individuals who use target date funds outperform those who try to do it themselves over time on average. However, If you are interested in making changes to your 401(k) portfolio and find it to be overwhelming, the Financial Advisors at Whitaker-Myers Wealth Managers can help. We offer 401(k) management where we can look at what options you have available in your 401(k) and help you make informed investment decisions that match your risk tolerance and goals. For most individuals, the 401(k) is their primary investment vehicle, which means how you are invested can make or break your retirement. If you have any questions about your 401(k) investment options, please reach out to your advisor today.

Have you ever thought you had a goal nailed down? Exactly what you need to do, how long it’ll take, and when you’ll get there. Then as you work towards that goal, life happens, your desires adjust a bit, and now the plan is a little bit farther or closer than initially thought. That’s commonly the way I think about the question, “how much do I need to retire”? Experts for years have disagreed on the right way to help someone figure out this number, but it seems to be, in my 15 years of helping people with retirement planning, that the successful ones are not fixated on the actual number they need because from now until retirement things are going to change and adjust. Instead, they are fixated on their Baby Step 4, saving 15% of their income, which will create the outcome they’re looking for. However, throughout this article, I’ll try and give you some guidance around how we would help a client try and determine if they’re on the right path to retirement and help them answer the question, “How much do I need to retire?” First Things First: Baby Step 4, Save 15% of Your Income Towards Retirement. Let’s all agree on one thing right off the bat…. You can’t get to any level of security without saving for retirement. That’s why we recommend that clients first pay off all their debt, excluding their primary residence, because we know that your greatest wealth-building tool is your income, and the more of it that is paid to the bank, the greater the propensity not to be able to be consistent enough with your retirement saving. Additionally, retirement is a basic equation: income must equal expenses. Your income is now becoming Social Security and/or pensions plus investment income; therefore, the more you don’t have “payments” to the bank, the less you need in income, meaning the fewer total assets you need, getting you to retirement quicker. Don’t ever let a Financial Planner tell you that debt is a good thing or something you should take into retirement. It’s a curse, the Bible calls us a fool for having it, and it only increases the wealth of the banks, which have been known to screw up our economy a time or two in the past. Once your debt is paid off, you can begin saving for retirement using the Baby Step 4 method. This method is simple: You need to save 15% of your income towards retirement. We, along with Ramsey Solutions, would argue that this needs to be 15% of YOUR income (excluding your match). Still, even if you achieve 15% of your income by including your employer match, there is a high propensity that you will be doing well, especially if you started at a reasonable age. I recently did a video walking you through how we would recommend you execute Baby Step 4. This can be seen here by clicking here. Guaranteed Income: Social Security, Pension, Etc. Most individuals in America will have some level of guaranteed income in retirement. If you’ve worked in the private sector, you’ll have Social Security and possibly, if blessed to work for a company providing one, a pension. If you worked for any level of the Government, you’d have a pension through either the Federal System (FERS) or a state or local-based pension system. How much of these benefits are replacing your income? If you’re on Social Security, you can estimate that about 40% of your income will be replaced by Social Security, according to this article by AARP. If you’re in a pension, typically, if you max your benefit, you’ll receive about 70% of your income. Both are excellent benefits, and they give us a great start; however, nothing that will allow you to have that retirement you’ve been dreaming of. Therefore, we need to take that next step: Investments! The 4% Rule, Perhaps 5% Rule Bill Bengen was an engineer turned financial advisor in Southern California. As many engineers tend to do (shout out to our excellent engineer clientele), he needed to take apart the question, “how much of my client’s portfolio should they withdrawal each year” and understand it backward and forwards. Knowing that clients, when they are close to or at retirement, should have allocated a portion of their portfolio towards safer, slower-growing investments, especially if they’re using their portfolio for income replacement, he assumed that he shouldn’t be recommending a 10% type withdrawal rate, but having some stocks in the portfolio also meant he didn’t need to recommend a 2% withdrawal rate. He back-tested every percent, and the number that never created a situation where a client exhausted their money, was 4%. Even in the worst case, Great Depression type of scenario, a client would still have something left over their retirement lifetime, which he defined as 33 years. The years he calculated were 1926 through 1976. If you’d like to read the Journal of Financial Planning article, click here! However, Bengen was recently interviewed in 2020, saying the 4% rule was a starting point, not an end-all-be-all. He articulated that while the 4% rule has its critics and contenders, he only meant that number as a worst-case scenario. Instead, he says, when testing the data, there were times that a retiree could have taken out 7%, and there were other times it reached as high as 13%. Today, he is retired and living his best life in Arizona (yes, we Financial Planners even plan our retirement), and he is currently taking out 4.5% of his portfolio. He would advocate that perhaps a 5% rule is more realistic in today’s world. You can read that article here. With that backdrop, let’s assume the 4% rule is the number you’d like to use to turn your investment balance into an income stream. An article I recently wrote about the happiest retirees discussed how the happiest retirees had around $500,000 in investable retirement assets. Therefore, if we had saved $500,000 and used the 4% rule to help us calculate the income we could safely take from that portfolio, it would tell us to take $20,000 / year or $1,666 / month. Want to use the more aggressive but high probability number of 5%, then you’re looking at $25,000 / year or $2,083 / month. Of course, you can take higher amounts than discussed here; you just run a higher risk of running out of funds later in life. Expenses In Retirement When retired, do you need to replace 100% of your income? Typically, the answer to that is no. Retirement is so dynamic, and everyone’s situation is unique. Research has shown that the average retiree will need about 80% of their income in retirement, but we’ve seen clients that have dropped to around 50% of their pre-retirement income. One choice that significantly reduces what percent of your income you need in retirement without changing your lifestyle is how successful you were in saving in Roth IRAs. The average person pays the IRS 10% - 25% of their income. If you can reduce that number to zero because of substantial Roth IRA and Roth 401(k) contributions throughout your life, then you’ve lowered the amount of income you’d need to replace without cutting something out of your life you’d like to do, because you’ve eliminated or significantly reduced taxes in retirement. We have a particular way our Financial Planners and Advisors help our clients figure out their expenses in retirement. We start with their current income and adjust it for inflation in the future. We subtract out their income: taxes (today and future expected income taxes) along with Social Security and Medicare taxes that you typically don’t pay in retirement. We then remove any liability payments you have today because we strongly recommend that you not enter retirement until you’re debt free. We back off your savings rate, meaning if you have been saving 15% of your income towards retirement that doesn’t need to be replaced in retirement, and then we add things like Medicare Premiums, travel expenses and home maintenance expenses, and any other individualized expenses, you’d like to see in your plan. This helps us to answer what your specific replacement needs may look like in retirement and therefore show someone when they’d have saved enough to live off 4-5% of their portfolio and eventual pensions and/or Social Security to guide them around if they’ve saved enough for retirement and/or how much do you need to save to hit generate enough income to equal your total retirement expenses. How Much Do I Need? Create a Plan! To Recap, you’ve taken steps to begin saving 15% of your income for retirement. You’ll probably replace about 40% of your income through Social Security (perhaps more with a pension). Then your investment savings will create an income by using the 4-5% withdrawal rate discussed above. Finally, you’ll need to determine your expected living, travel, and home maintenance expenses, along with taxes (income and property) and health insurance premiums in retirement. So how much you need is a moving target, which is why so many people, even the devout do-it-yourselfers, eventually seek the input and advice of a Financial Planner. The key to having confidence is to have a plan, look at the projections of that plan, and then begin to execute that plan to success! A recent research piece by the Employee Benefit Research Institute (EBRI) found that only about 42% of people even tried to calculate how much retirement assets they’ll need to have a secure and comfortable retirement. That number is dangerously low, and you shouldn’t have to live with that uncertainty. Talk to one of our Financial Advisors today, and they’ll begin to dialogue with you about the steps you need to take to start creating a successful plan.

On Wednesday, August 24, 2022, President Biden announced changes to student loan debt relief. The biggest item of note was up to $20,000 of student loan forgiveness on federal student loans to current borrowers. Also announced was the continued delayed payment and 0% interest rate of student loans for one “final” time from December 31, 2022, until January 2023. For the payment delay, there are no steps needed to take for this; it will automatically occur. This article is not intended to debate the merits of this announcement, but rather to walk you through the program details and resources that have been outlined at this point. What are the eligibility possibilities for student loan forgiveness? A borrower is eligible for $10,000 of forgiveness if they had no Pell Grants. If they had Pell Grants, then they’re eligible for up to $20,000- limited to the amount of their outstanding debt. It is not clear whether there are any requirements around the number of Pell Grants you had to receive to be eligible for the forgiveness. If you are not sure whether you received a Pell Grant, you can log into the National Student Loan Data Systems website and your previous aid will be available. All federal student loans including Direct, FFELP, Perkins, Grad Plus, and Parent Plus qualify for forgiveness. A parent with a Parent Plus would separately have to qualify and would be independent as to whether the student borrower would qualify for the forgiveness. Private loans are not eligible for forgiveness. If you’ve made payments/paid-off your loans since March 2020 you should reach out to your loan servicer and request a refund for those payments. Your debt relief is capped at your outstanding balance (i.e. if your outstanding balance is $8,523 and you received no Pell grant then your forgiven amount will be limited to that amount, not $10,000). The loan had to be disbursed before 6/30/2022 to be eligible for forgiveness as opposed to when the loan originated. Active student borrowers who were dependent students in the 2021-2022 year will be eligible for relief based on their parent’s income, not their own. How does income affect eligibility? Anyone who makes over $125,000 filing single or $250,000 filing joint is not eligible. What has not been released yet is: What’s considered income? For stimulus payments, the IRS used adjusted gross income or AGI, which can be found on line 11 of your Federal 1040 form If there’s a phase-out income range or if there’s a cliff (e.g. if you made $125,001 filing single then you don’t qualify). It appears to be a cliff. What tax year this income limit is on? It appears it will likely be 2020 or 2021’s income. How taxes could affect the eligibility If by chance it is based on 2022 income, a borrower could still potentially control their income through contributions to Traditional 401(k), Traditional IRA, HSA, FSA, or Dependent Care FSA, or filling status. If it is based on 2020 or 2021, then there could be some potential planning opportunities: someone who has not yet filed their 2021 taxes and is a business owner that can lower their AGI. It appears that this forgiven amount will not be taxable at the federal level per the American Rescue Plan, but could be at the state level depending on what state you live in. Some states have no tax already, others replicate federal rules or some could make an exception. These laws could also change to make it not taxable. This is something we will be monitoring as well. Do I need to do anything if I am eligible? The loans for most borrowers would be automatically removed from their balance as the Department of Education has income on file for the majority of borrowers. For those it doesn’t, there will be a “simple” application that the U.S. Department of Education will launch in the coming weeks. If you would like to be notified by the U.S. Department of Education when the application is open, please sign up on the Department of Education subscription page. Lastly, included in the bill was the addition of another income-driven repayment (IDR) plan. The rule lowers the required percentage of discretionary income amount of borrowers from 10% to 5% for undergrad loans and 10% for grad loans from 10-20% program dependent. The amount of income that’s considered non-discretionary is protected from repayment guaranteeing no borrower earning under 225% of the federal poverty level will have to make a payment. Loans will be forgiven where balances are less than $12,000 and have been paid for 10 years (previously 20 years). Under the IDR plan, you would not accrue any interest above what you make on a payment (even if your IDR payment is $0) so your balance would not continue to grow as it did with the other existing income-driven repayment plans. There still could be legal challenges to this forgiveness so borrowers should not assume this is a guarantee until the eligible balance has been officially removed from their account. If you are eligible for the Public Student Loan Forgiveness (PSLF) plan, there’s a program that you can/must apply for by October 31, 2022, to count payments towards your student loans that may have not previously counted towards the PSLF program.