Why Student Loans and Retirement Cripple Each Other

Student loans and retirement are two major financial topics at the heart of employees’ financial concerns. Unfortunately, they may have a crippling effect on each other and may cause a ripple that negatively affects other financial goals and challenges, too.

Who is affected?

• A portion of adults in each age group – from young adults in their 20s to people over 90 years of age – have student loan debt.¹
• How much remaining debt do they have? Anywhere from an average of $21.5K to an average of $40.5K, depending on the age group.¹
• Even adults who are 62 years or older – adults who should be getting ready to enjoy retirement – still report an average debt of more than $40,000.¹

How is it affecting employees?

If employees are focusing on paying off student loans, they may be simultaneously minimizing their retirement contributions in order to meet the demand of the debt. And they may be unable to adequately grow savings for other short or long-term goals for the same reason. That means that when they get to the point where their kids need help with education costs or some financial crisis arises, they may resort to dipping into what little retirement savings they have.

But wait, there’s more.

In addition to the weight of paying off debt and worrying about financial security in retirement, employees likely find themselves dealing with a plethora of other problems, such as….

• Increased financial stress
• Inability to meet monthly expenses
• Carrying credit card balances and struggling to pay the monthly minimum

When student loans become a hindrance, other financial responsibilities become a burden as well.

What can you do?

Whether you’re focusing on retirement or student loans or any financial topic, a good 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 you can take steps specifically geared toward your financial goal or concern.

Possible Next Steps for Student Loans

Here are some examples of how you might approach the cost of education:

• If you may have college expenses in the future, consider planning now with savings vehicles specifically geared toward education.
• If you’re looking into student loans, also consider options like grants and scholarships that don’t need to be paid back.
• If you’re struggling to pay off your student loans, there may be several options available, such as consolidating your loans for a smaller interest rate and/or monthly payment, creating an income-based repayment plan, or 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) member, you can talk with an MSA Money Coach who is a Student Loan Specialist and get more information about the different ways to tackle college expenses and how you might 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 could allow her to be debt free in less than ten years.  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.

• Consider setting aside part of your paycheck each month for your future, even if it’s only a dollar.  Every little bit counts!
• If your employer offers some kind of retirement savings vehicle – like a 401(k) – consider contributing enough to get the full employer match (if available).
• 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 an MSA member, you can talk with an MSA Retirement Specialist to get more details about the options.

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 helped him determine how much income he might need in retirement, and how much his current retirement savings could amount to in the future.  Anthony decided to increase his 401(k) contributions, and he opened a Traditional IRA for additional savings.  Now, he’s more on track to retire comfortably.

Next Steps for Greater Financial Success

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

• Establish a solid financial foundation by strengthening financial habits
• Determine your current challenges and financial goals
• Create and implement an action plan

Through MSA, you can work one-on-one with a Money Coach and a whole team of specialists who carry multiple financial credentials and who can help you with virtually any financial topic.  You also get access to online resources like a personalized digital platform 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.

¹ Hanson, Melanie. “Student Loan Debt by Age” EducationData.org, April 19, 2022, https://educationdata.org/student-loan-debt-by-age

² My Secure Advantage, Inc., January 2021. Based on MSA members’ self-reported financial data from 1/1/20 – 12/31/20 from members working with a Money Coach.

Information provided in this article is for informational purposes only and is not intended to offer specific personalized investment, financial planning, tax, legal, or accounting advice.  We recommend that you consult an attorney, tax advisor, or accountant regarding your unique circumstances.

My Secure Advantage, Inc. or any of its representatives do not endorse any of the websites or company names listed here.

Testimonials were provided by members of MSA.  They did not receive compensation of any kind for their statement.