What the CARES Act Means for Younger Investors

The recently enacted CARES Act includes several provisions that impact younger investors, including student loan debt relief. Retirement Director Ben Rizzuto provides an overview and explains how young Americans can take advantage of the stimulus package to be better prepared financially for the uncertainty that lies ahead.

COVID-19 has obviously had a dramatic impact on the way we conduct our lives. Life during the pandemic has spawned new concepts and trends like social distancing, #WFH, Joe Exotic, what to wear for Zoom meetings and, most importantly, constant speculation about when things will finally return to normal.

The pandemic has also had a severe financial impact on Americans. Workers’ hours have been cut, employees have been furloughed and a great number of people have suddenly lost their sources of income.

The financial hardships the country is facing as a result of COVID-19 led to the recent enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020. The $2.2 trillion stimulus package was created to help individuals, businesses, and state and local governments get through these difficult times.

The CARES Act contains several provisions that impact younger investors specifically. Following is an overview of those changes and how young Americans can take advantage of them to be better prepared financially for the uncertainty that lies ahead.

Recovery Rebates

The centerpiece of this legislation is the provision that will provide direct payments to Americans. These so-called “Recovery Rebates” can be up to $1,200 (for single individuals) or $2,400 (for married couples filing jointly) plus $500 for each child under the age of 17. The amount you receive will be based on your adjusted gross income (AGI)* and will decrease incrementally once your AGI is over $75,000 (single) or $150,000 (married). For every $100 your income exceeds these thresholds, your stimulus payment will decrease by $5.

For example, a single person with no children who has AGI of $65,000 can expect a stimulus payment of $1,200. However, the stimulus check amount for an individual whose AGI is $80,000 would decrease to $950. Likewise, a married couple that has two children under 17 years of age and AGI of $147,000 can expect a stimulus check of $3,400, while a couple with AGI of $175,000 would receive $2,150.

There are several calculators you can find online to estimate what you might receive based on your most recent tax filing information.

Student Loan Debt Relief

The CARES Act also includes some relief for those who may be struggling to pay off student loan debt during this period. Student loan payments can now be deferred until September 30, 2020. During this period, no interest or penalties will be accrued. The average student loan payment is currently $393, so this should be a welcome relief for many.1 One thing to note, however, is that if you have an automatic payment plan set up, you will need to actively put it on pause during this period.

Additionally, for those in professions (doctors, nurses, teachers, federal agency employees, etc.) where loan forgiveness programs are available, it is important to note that the period between now and September 2020 will count toward your forgiveness requirements. As such, it might make sense to stop making automatic payments during this period since the total debt will be forgiven.

Health Savings Account (HSA)

Many younger Americans may be using their companies’ High Deductible Health Plan (HDHP) to access a Health Savings Account (HSA). In fact, participation by millennials and Gen Xers who were eligible for an HSA grew from 40% and 53% to 76% and 85%, respectively, from 2017 to 2018.2

The increased number of younger individuals using HSAs should know that the CARES Act has expanded the definition of qualified medical expense to include over-the-counter medications and menstrual care products. Also, telehealth services will be temporarily coved by HDHPs, even for those who haven’t met their deductible for the 2020 plan year.

Along with these items, there are other provisions that provide Americans of all ages with easier access to liquidity through their retirement plan. A description of those provisions can be found in my recent blog post.

Ultimately, the hope is that this unprecedented economic stimulus package gets us through this difficult time. By taking advantage of the provisions outlined above, doing some planning and seeking advice from those who have experienced economic downturns in the past, younger investors can be better prepared financially and emotionally for what lies ahead.

 

*Adjusted Gross Income = Gross Income, which includes wages, dividends, alimony, business income, minus items such as student loan interest or contributions to a traditional individual retirement account or a health savings account.

1Carter, Matt. “U.S. Student Loan Statistics.” Credible.com. November 2019.)

2Grant, Kelli B. “Millennials: Here’s what to consider before you dive into a health savings account.” CNBC, May 9, 2019.