Student Loans and Retirement: Tips to Tackle Both Goals

May 22, 2018

Are you one of the millions of Americans struggling with student loan debt? According to statistics from the Federal Reserve, Americans owe more than $1.4 trillion in student loan debt. That’s nearly double the aggregate credit card balance. More than 40 percent of Americans have student loans, and 11 percent of them are in delinquent status on those obligations.1

If you’re dealing with student loans, retirement may not seem like a high priority. That’s especially true if you’re decades away from retirement. You might feel urgency to pay off your student loans before you begin saving for the future.

Ignoring retirement could be a mistake, however. While retirement may be years away, that doesn’t make it any less of a priority. You may need to fund decades of living expenses in retirement. That kind of financial challenge requires a substantial amount of savings.

The only way to accumulate the necessary level of assets is to start saving as soon as possible, even if you are still paying for student loans. Fortunately, with careful planning, you can tackle both objectives. Below are a few tips to help you do so:

Stick to a budget.

A recent study found that only 40 percent of Americans use a budget.2 A budget is one of the most powerful financial tools at your disposal. You can use it to inform your spending decisions and monitor your progress toward your goals. Without a budget, it’s hard to know whether you’re on track.

When you develop your budget, you may discover that you’re spending more than you should on discretionary items, like travel or shopping. You may find that your debt level is holding you back. Cuts in those areas may give you the extra money you need to put toward retirement while you’re paying off your student loans. Plenty of apps and software can help you budget, but a spreadsheet or pen and paper can also be effective.

Get the employer match in your 401(k).

Do you participate in your company’s 401(k) plan? Employer-sponsored 401(k) plans can be very effective retirement savings vehicles. That’s especially true if your employer offers a matching contribution. Many employers will match up to a certain percentage of their employees’ contributions. For example, your employer may match contributions up to the first 3 percent of your salary.

Find out your employer’s matching policy, and then contribute at least enough to get the full match contribution. Those matching funds could substantially increase your savings rate. They could even double your retirement contribution amount. That’s an easy way to save more money without impacting your budget.

Put your retirement savings on autopilot.

Many people think they can’t afford to save for retirement, but the truth is that they’re simply choosing to use their money on other priorities. A helpful strategy is to remove choice from the process and make your savings automatic. Consider savings to be a mandatory expense, like utilities or your mortgage.

Automate a contribution from your paycheck or bank account to your IRA. You may notice the hit to your budget at first. Over time, however, you will likely adjust your spending to accommodate the contribution.

Ready to develop your retirement savings strategy? Let’s talk about it. Contact us today at Grand Canyon Planning Associates. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.