Why Student Loans and Retirement Cripple Each Other

a young girl reading a book in the grass

Student loans and retirement are two major financial topics at the heart of employees’ financial concerns, and they not only have a crippling effect on each other but cause a ripple that negatively effects all other financial goals.

Who is affected?

Around 40 million Americans have student loans, and the amount of overall student loan debt is over $1 trillion.1

More specifically, about half of Millennials have student loans, and 79% of them say that paying off student loans negatively impacts their other goals.2  On top of that, Millennials not only have their own loans hanging over them; they’re also worried about paying for their kids’ college education.

Older generations, like Gen X and Baby Boomers, feel the same way; so much that many are giving up their retirement contributions for their kids’ educations costs.

How is it affecting them?

Basically, employees are minimizing their retirement contributions because they’re focusing on paying off student loans, and 48% of employees aren’t saving for retirement at all because of debt.3  Unfortunately, less than half of employees have some kind of savings vehicle for future education expenses,3 so when they get to the point where their kids need help with education costs, they’re dipping into what little retirement savings they have because they didn’t plan ahead.  Of those saving for retirement, 1 in 5 have already made withdrawals for non-retirement expenses.3

It’s no surprise then that a major concern for employees is “running out of money” in retirement, and over a third (36%) of employees plan on postponing retirement.3

But wait, there’s more.

According to a recent survey shared by EBN, employees who have student loans (when compared to those who don’t) are more likely to be…

  • Financially stressed
  • Distracted and less productive at work
  • Unable to meet monthly expenses
  • Carrying credit card balances and struggling to pay the monthly minimum

What can you do?

Whether you’re focusing on retirement or student loans or any financial topic, the first step is to create a budget.  Review your income, debt, and living expenses to determine how much you can afford to put toward goals like saving for the future or paying off loans.

Then take steps specifically geared towards your financial goal or concern.

Next Steps for Student Loans

Here are some examples for how to approach the cost of education:

  • If you will have college expenses in the future, start planning now with savings vehicles specifically geared towards education, like a 529 Savings Plan or a Coverdell Savings Account.
  • If you’re looking into student loans, exhaust other options first, like grants and scholarships that don’t need to be paid back.  Try using websites like Fastweb – a search engine that finds scholarships and awards based on your skills and interests.
  • If you’re struggling to pay off your student loans, there are several options available, such as consolidating your loans for a smaller interest rate and/or monthly payment, creating an income-based repayment plan, and contacting the lender(s) for relief programs like forbearance or deferral.
  • If you’re a parent struggling to pay off loans for your kids’ education, you can also create an income-based repayment plan or contact the lender(s) for relief programs, among other options.

If you’re a My Secure Advantage (MSA) Financial Wellness member, you can talk with a MSA College Planning & Student Loan Specialist for more information about the different ways to tackle college expenses and how best to move forward given your situation.

Real Life Example

One MSA member, Sarah, had $80,000 in student loan debt and another $20,000 in credit card debt.  Her MSA Money Coach, Dave, helped her create a budget and consolidate her student loans under a federal loan program that will allow her to be debt free in less than ten years.  Effectively addressing her debt opened doors:  “I have savings for the first time in my life!  I have around $3K in my savings account!!!  Also, I saved up enough money to move into a new (and better) apartment (putting down security and 1st month no worries) and to buy a new car!  These accomplishments are directly related to working with Coach Dave!”

Next Steps for Retirement

Whether you’re just starting your career or you’re a seasoned professional, it’s never too early or too late to start thinking about retirement.

  • Set aside part of your paycheck each month for your future, even if it’s only a dollar.  Every little bit counts!
  • If you’re employer offers some kind of retirement savings vehicle – like a 401(k) – consider contributing enough to get the full employer match (if available) because if you’re not, you’re leaving money on the table.
  • Consider an Individual Retirement Account, more commonly referred to as an IRA.  There are different kinds of IRAs (e.g. Traditional and Roth), and each have pros and cons, so make sure you do your research.

If you’re a MSA member, you can talk with a MSA Retirement Specialist about which type of retirement plan is best for you.

Real Life Example

Anthony wanted to retire in ten years, but he was anticipating very little help from Social Security, and he didn’t have a pension.  He engaged in the MSA program and started working with a personal Money Coach and Retirement Specialist.  His coach walked him through a retirement analysis that helped determine (1) how much income he might need in retirement, (2) how much his current retirement savings will amount to in the future, and (3) how to adjust his contributions to meet the difference.  From there, Anthony increased his 401(k) contributions from $250 a month to $400, and he opened a Traditional IRA for additional savings.  Now, he’s on track to retire comfortably.

Next Steps for Financial Success

Any financial concern, if left unattended, can cause major damage, and goals without action will probably never happen, so how do you tackle the issue before it becomes a problem?  Engage in a financial wellness program that helps you do the following:

  • Establish a solid financial foundation by strengthening best financial practices
  • Determine your current challenges and financial goals
  • Create and implement an action plan for success

Through the MSA Financial Wellness program, you can work one-on-one with a Money Coach and a whole team of specialists who carry multiple financial credentials and can help you with virtually any financial topic.  You also get access to online resources like a personalized website with your goals and action plan, a financial library, calculators, educational videos, personal financial management software, and more.

Hundreds of employees like Sarah and Anthony use the MSA program each day and see amazing results.  Now it’s your turn!  Tackle your student loans, prepare for retirement, and feel good about your finances by calling 888-724-2326 today.

 

1Berman, Jillian.  “Watch American’s Student-Loan Debt Grow $2,726 Every Second.”  marketwatch.com.  MarketWatch, 30 Jan. 2016.  Web.  26 Apr. 2016.

2Employee Financial Wellness Survey: 2016 Results.  PwC, Apr. 2016.  Web.  22 Apr. 2016.

3Employee Financial Wellness Survey: 2015 Results.  PwC, Apr. 2015.  Web.  22 Apr. 2016.