Friday Financial Five – January 29, 2016

Friday, January 29, 2016

Dan Forbes, GoLocalWorcester Contributor

Defaults on student loans growing

According to ADP, garnished wages are up dramatically as over $1 billion in government backed student debt is being collected yearly, a 40% uptick from 2006. Parents are a big part of this as they are on the hook for their student’s debt in many cases. This report coupled with the Simple Dollar review of states with the most student loan debt makes for a scary proposition. New Hampshire leads the way with over three quarters of the state’s students graduating with debt. Rhode Island placed sixth with an average of debt of over $31,000 and 65% of graduates incurring loans.

Possible wrinkle for Social Security payments to ex-spouses

“Graying” or later-in-life divorces have been steadily increasing in recent years. In 2014, couples age 50 and older were twice as likely to make the decision to separate than in 1990, and for those over age 65 the statistics were even higher. The proposed changes to social security claiming strategies could present a wrinkle for those who plan to collect on their ex-spouse’s social security for a source of retirement income, provided they were married for 10 years or longer. Under the proposed changes in section 202(z)(3)(B), when someone suspends their benefit to age 70 to earn more credits, “no monthly benefit shall be payable to any other individual on the basis of wages and self-employment income”. In the past, the divorced spouse didn’t need the other spouse to file to be eligible for benefits (but had to be age 62 or older). With the changes taking place in April of this year, a former spouse who suspends could potentially cause the divorced ex-spouse to lose access to benefits until that time as well.

Democratic candidates cite executive action to raise taxes

Hillary Clinton and Bernie Sanders have raised the possibility that they would employ executive action to bypass Congress and raise taxes. Both are in favor of closing the carried interest and inversion loopholes. Sanders would close “check-the-box” elections which favor multinational companies. Clinton is targeting IRA money and would like to cap the amount that can be accumulated. By implementing their tax policies, Clinton hopes to raise half a trillion dollars in new revenue, while Sanders’ plans would result in trillions in new dollars to fund college and single-payer healthcare.

Metlife and “too big to fail”

Regulations have come fast and furious since the events of 2008, and one company, Metlife, considered breaking up in the face of stricter capital requirements. Metlife, the country’s largest life insurance company, told regulators in 2014 that being labeled too big to fail might force action to reduce the size of the company. More recently, Met announced the possibility of selling or making public their domestic retail business. Other companies may follow as being labeled systemically important could mean costs and controls too onerous to sustain profitability.

Cable cord-cutting in action

Getting out from under the thumb of the cable companies does take some work and putting a cost-cutting plan into action isn’t always smooth sailing. In a household with many devices using internet, the most important aspect is the internet speed and functionality, and this may cost an average of $60 per month. Many combine Sling TV for $20 per month, Netflix at $10 per month, and then add an antenna for local channels and Roku 3 for a total one-time purchase of $160. For someone paying $175 per month for cable, the monthly savings in this example for the first year alone would be over $800, but rates will vary. Reduced selection and a household at the mercy of the internet provider is the downside.

Dan Forbes, a CFP Board Ambassador, is a regular contributor on financial issues. He leads the firm Forbes Financial Planning, Inc in East Greenwich, RI and can be reached at [email protected].