Perspectives

Q & A with T. Rowe Price Financial Planners

A few weeks ago, we asked our Facebook fans what financial education issues they wanted to learn more about during financial literacy month in April. And we received some great suggestions from our fans! Instead of addressing each issue individually, we decided to share the issues and answers here, on our blog.

To give you the most insightful answer, we asked Christine Fahlund, Ph.D., CFP® and Stuart Ritter, CFP® to add their expertise. Christine is a senior financial planner and vice president of T. Rowe Price Investment Services, and Stuart is a senior financial planner and vice president of T. Rowe Price Investment Services.

After reviewing the issues, here’s what Christine and Stuart had to say:

Issue 1: Repaying back student loans

Answer: Stay on schedule for repaying your student loans, but don’t accelerate your payments at the expense of saving for your retirement. Be sure to get any employer match and try to save up to 15 percent of salary every year if you can, even if you have to start gradually.

Issue 2: How to handle credit and finances after bankruptcy

Answer: We don’t believe that anything should be handled specifically different. You should handle your finances the way you should have before bankruptcy: save at least 15 percent for retirement, have 3-6 months of expenses put away for an emergency fund, pay off high-interest debt (and don’t accumulate any more!) and make sure you have the insurance you need.

Issue 3: Managing tax exposure

Answer: You’re asking about tax exposure, but we believe you might be pursuing the wrong goal. Or at the very least, there are several other goals you should pursue before you start worrying about your tax exposure.

Let me illustrate with a quick question: Which would you rather have? (A) Ten dollars and you have to give me $2, or (B) $7 and you get to keep the whole thing. Or, let me ask it another way. Which would you rather have? (A) Ten dollars and you have to pay $2 in taxes, or (B) $7 tax-free?

If you’re focused on only managing taxes, you’d pick (B) in the second question, but you undoubtedly selected (A) in the first version. Why? Because it’s not about managing tax exposure, it’s about getting you the most spendable income (and sometimes the approach to do so involves paying taxes).

So focus on achieving your financial goals: save at least 15 percent, using the right account to give you the best tax benefits (Roth IRA), and having an appropriate investment strategy. Tax considerations come after.

Issue 4: Proper way to prepare to buy a home and how to pay off student loans in a way that it strengthens your credit score

Answer: Go to myFICO.com to see what affects the credit score used by most lenders. The biggest factor is whether you do what you say you’re going to do—pay back the money you borrowed, on time, every time. Make sure when you buy a home that you buy one at a price that allows you to keep doing that.

Issue 5: I’ve heard a great deal about social security disappearing when my generation reaches retirement age … what can I do about my retirement plan now? (I’m 22)

Answer: If you think social security may disappear, that is all the more reason to save as much as you can—as early as you can—for retirement. Under the current rules, if nothing changes, Social Security is not disappearing.

The important aspect to think about is, the less you get from Social Security, the more you have to save on your own. The upside of that is, the more you save on your own, the less you have to worry about what you’ll get from Social Security.

Our rule of thumb is to save at least 15 percent of salary (which includes any employer match) each year in tax-deferred accounts for retirement. Lastly, thank you for thinking about all this at age 22!

T. Rowe Price Investment Services, Inc., its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this website (including all links) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised on this website.

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