Sun Group Wealth Partners Financial Advisor Winnie Sun joins Yahoo Finance to discuss social security raises and the best investment strategies for students with debt.

Video Transcript

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- A couple of things when managing your own money that you need to be aware of if you are on the older side. Social Security benefits, they're going to go up by 5.9% next year. That's the biggest year-over-year increase in 40 years. If you are on the younger side, you've got to think about how to invest if you have a lot of student debt.

Let's talk about the first one of those first. Winnie Sun is with us, financial advisor at Sun Group Wealth Partners. Winnie, good to see you. Thanks for being here. So for people who are considering that their Social Security checks are going to go up, they can't just consider that, though. They also have to consider the pace of inflation. So how should they be thinking about that extra income and how they should be approaching it?

WINNIE SUN: So Julie, your point is perfect. It's true, you know, the Social Security payments are going higher in January, but what we found is the cost of goods are significantly higher. In fact, I've been speaking to clients who are currently on Social Security, and they're looking at this as welcome relief because there is a lot of concerns because they're seeing not only their weekly budgets go up and just food costs, right, the-- at the gas pump. Things are getting more expensive. So I don't know that there's going to be so much extra money because Social Security payments are going higher, but I think it's going to help them just cover their normal day-to-day costs. And if they have something set aside a little bit extra, we're definitely being proactive and socking that away into their emergency fund.

- Winnie, how should one be investing in this inflationary environment?

WINNIE SUN: That's a good question. You know, it's a really challenging time because we need to keep up with inflation costs, but we're also looking at short-term needs, as well as long-term needs. So it really depends on the client. You know, our clients generally tend to be a little bit younger. A lot of our are in tech or entertainment. So still-- many of them still have work. And so what we're doing is we're trying to be really smart, kind of focus on tax shelter investing, maxing out on their 401(k), looking at things like the traditional IRA or the backdoor Roth IRA, ways to be able to stretch those long-term, and just kind of, you know, tightening our budgets right now temporarily so we can get through this wave.

- Speaking of younger investors who might be your clients, let's talk student debt, because it can feel like such a burden for people who have it. Does it preclude, though, those people investing on the other side, even as they are paying down that debt?

WINNIE SUN: Sure, Julie. You know, that's a good question. I remember I had a significant amount of student debt when I graduated, too. I think sometimes we're, like, watching the news, we're looking at certain areas, tech, you know, maybe even crypto, and thinking I feel like I'm behind. I feel like I need to get in there.

Now, the thing you have to think about is, you have student debt, it's sort of like jumping in a swimming pool with a broken arm. You don't get that far when it comes to investing because we do know that a lot of student debt has an interest rate of about 5.8%. Now, when we talk about investing, we usually use sort of a moderate return of somewhere between 6% to 7%. So usually, if you have student debt, one of your best investments is actually to pay more towards your student debt because that's a guaranteed win to your bottom line. You pay off that debt, you're guaranteed at least that 5.8% going away.

Now, some new loans might have a slightly lower interest rate. And again, you might want to invest. And you could. What you could do is this, is be moderate about your approach. You know, go ahead and pay more towards your student loan if you have some extra income. And if not, if you want to start to invest, maybe take half of that amount, pay more towards the loan, and take the other half and invest it in maybe mutual funds, ETFs, something diversified, low-cost, and really focus on beefing up what you can on a tax-sheltered basis. So, you know, adding to your 401(k) at work, getting that match is definitely a big win. Maybe looking at a Roth IRA, too, if you qualify.

- Yeah, it seems to me, Winnie, if you're looking at a student debt that is at a 5.9% interest rate, you know, especially given the way stocks have been going, you can probably beat that, right, in terms of performance. So in that case, wouldn't it indeed make sense-- I mean, we're not talking about betting the whole farm on investing in something, but it seems to me that, if you can make that better return, then that might be a good use of your money.

WINNIE SUN: Well, we like to have a nice return, but we also are looking at reality. And the market's very, very-- it's very, very high now. And so if you're jumping in now, you want to make sure that you maximize your potential for a return. So I like, you know, adding into places like the 401(k) because, especially if you're getting a company match, then that's sort of free money in the first few percentages, so you're upping your opportunity of getting a better return there.

But you know, the thing is we've got to look at the other side of your portfolio. If you've got student loan debt, that continues to creep up. That interest rate continues to grow. And it'll feel really good when you get that paid down. So if you can aggressively pay that down, you'll have more opportunities to invest. And not only that is when you pay down your student debt, usually your credit score also gets boosted. So overall, your financial well-being will improve if you aggressively get that student debt paid off.

- Winnie, thanks for being here. Winnie Sun, financial advisor at Sun Group Wealth Partners. Thanks. Appreciate it.