Senior Vice President
In her advisory work with clients, Michelle Brownstein seeks to deliver a cohesive, transparent strategy to managing their wealth and achieving their goals. Michelle understands that the first step in any successful relationship with a client is to truly listen and ensure that there is a clear set of goals laid out up front.
While Michelle currently specializes in working with higher net worth individuals, her experience ranges from working with individuals just starting out and putting their first plan in place out of college to those living off their assets in retirement and figuring out the best way to pass assets to the next generation. Michelle is known for her directness and believes that being straight forward with clients is the best way to help them, even if the truth is a bit hard to swallow at times.
Michelle holds a BA in Economics along with a minor in Political Science from UCLA where she graduated with Honors; she earned her CFP® after completing the necessary course work through New York University.
Michelle loves to travel and often visits her family, who are still based in Southern California. When not in the office, she spends her time running, swimming, exploring new restaurants in San Francisco and cooking.
BA, Economics, UCLA
You’re not alone in this situation - Millennials have a lot of financial tradeoffs to consider, one of the most common being how to pay down debt while saving for the future. Ultimately, putting money towards your loans is a positive thing, so you can’t go wrong contributing more, but you can optimize how you choose to divvy up your funds so that you can save for retirement and other more immediate expenses simultaneously.
Your highest priority should be to make your minimum payments — no matter what. It’s not worth going into deferral or forbearance on your loans for the purpose of contributing to a retirement account. However, once you’re in a stable situation and able to make your minimum payments, plus normal expenses (rent, transportation, food, etc.), then it’s time to figure out how to allocate the rest of your funds for other long-term goals.
This may seem obvious, but it can get complicated if you have multiple loans and/or multiple servicers. Take stock of how much each loan is for, and the interest rate on each so you can begin prioritizing the loans with higher interest (usually those exceeding 5%) so you can pay them off faster and avoid accruing more interest than you need to.
If it gives you peace of mind to know your loans are being paid off as quickly as possible, then by all means stick with that strategy as long as you’ve already saved up enough cash to cover three to six months’ worth of expenses in an emergency fund. In the battle of good and bad debt, student loans aren’t terrible, so keep that in mind as you consider raising your school loan payments. Also remember that having liquidity can be more important than lowering your debt burden, particularly if you’re just starting out in your career and your long-term financial priorities like buying a home are more important to you than paying off your student loans early. In many cases like yours, renting may be a more appropriate course of action than buying a home given your debt to income ratio.
The fact you are asking these questions at 27 instead of 37 or 47 is terrific! You’re being thoughtful about your finances and that is a commendable first step. It’s great that you’re already taking advantage of the 457(b) match. Corporate matches are typically a large part of any employee equity package, so you want to make the most of it.
You didn’t mention savings outside of your 457(b) and it’s important to have enough cash on hand to cover any emergencies. Start by saving enough cash to cover 3-6 months of living expenses. This will help keep you and your family financially “safe” in the unfortunate event of a true emergency, like a medical expense where you have big bills to cover or a job loss where you need to pay for your house note, but don’t have income coming in.
After establishing your emergency fund, your next step should be to max out the other tax-sheltered retirement plans offered by your employer. Once you’ve maxed out your 457(b), which it sounds like you haven’t done yet based on your 6% contribution, start contributing the maximum allowable to the 401(k). Taking advantage of the available options and their respective matches is the best way to save for retirement.
Solo 401(k) plans are only available to business owners with a spouse and single business owners with no employees plans – like private practice doctors, CPAs and small family businesses. You mentioned you work for a company, so this definition might not match your employment situation. If so, you’re unfortunately ineligible for the solo 401(k) plan.
Separate from the Roth IRA, you may consider investing a portion of the sheltered funds into a traditional IRA - this will be dependant on your current and projected future tax brackets. A CPA can help determine what the right mix is between Roth & traditional IRAs. After maxing out the IRA side of the savings, you should consider saving in a brokerage account. Depending on your appetite for risk and for growth, you have several options available. If you’re interested in significant growth on your money, it might make sense for you to start investing your savings with a robo-advisor so you can develop a structured plan for investing, that way you can sit back and stay on track for your long-term investment goals.
It’s great that you’re almost done paying off your student loans! Usually, we recommend paying off your credit card debt and student loans as you approach your 30s, so you’re already ahead of the game. Now, it’s important for you to make sure you have enough cash on hand to cover any emergencies. We suggest saving enough cash to cover 3-6 months of expenses before you start investing. This will cover your expenses in the unfortunate event of a true emergency, like a medical expense where you have big bills to cover or a job loss where you need to pay rent, but don’t have income coming in.
After establishing your emergency fund, any extra income should go towards retirement.
You’re already familiar with 401(k) plans since you’ve been contributing, but make sure that if your company offers a “match” program, you’re contributing as much as you possibly can to maximize contributions. The 401(k) match is typically a large part of any employee equity package, so you want to make the most of it. If the Roth option is available, you should determine if it makes sense for you. After-tax contributions to a Roth 401(k) takes more out of your paycheck on the front end than a pre-tax contribution to a traditional 401(k), so it might hit your budget a little harder in the short term, however, when you’re ready to withdraw the funds in retirement, your earnings aren’t taxed. Simply put, when you take one dollar out of your account, you get to keep that whole dollar. Since you’re young and at the beginning of your career, it’s likely that you will become wealthier over time and taxes will be higher when you retire, so in that case, it’s better to pay them now.
As a general rule of thumb, before putting money towards retirement, pay off loans with an interest rate exceeding 5%. Interest fees on loans with interest rates above 5% will offset any probable investment gains, so you should start making extra payments toward these loans to reduce total interest expense, if you can. However, if the rate on the loan is less than 5%, it usually makes sense to invest extra cash, rather than paying off loans faster.
According to research we recently conducted, 48% of parents say they would prioritize saving for their child’s college education over their retirement – so the situation you’re faced with is a common one. When managing conflicting financial priorities, in most cases, saving for retirement should be a priority over saving for your child’s college. There are ways to offset the costs of college, like scholarships and student loans, but it’s a lot more challenging to offset the costs of retirement.
Remember to max out 401k contributions up the amount your employer (and your husband’s employer) will match at your respective jobs. If not, you’re leaving money on the table!