How to Balance Paying Off Student Debt with Saving for Retirement


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Student loans can be burdensome, as can reaching retirement without enough money saved for your future. Retirement Tip of the Week: Spend time and money now to balance paying off your student debt and building your retirement savings.

Many Americans, especially those early in their careers, can have trouble juggling all the financial obligations they have while saving money for their future. People in their 20s, 30s, and even 40s are trying to earn a decent living while paying for housing, food, transportation, and utilities. They may be trying to start a family or buy a house. There are also more than 44 million Americans who in total have $ 1.7 trillion in student debt. That burden can make building a portfolio over four to five decades a low priority. Deciding between repaying a student loan and financing a retirement account is a common question. People may also feel that they should be free of student debt before they start saving for the future, but some financial advisers disagree. A retirement account with constant contributions, even if it‘s only $ 20 or $ 50 a month at the beginning, will accumulate over time due to compound interest, compared to an account that starts later in life and has less time to grow with interest and investment returns. . For example: if Carolina, 25, invested $ 1,000 each year for 10 years, then $ 2,000 each year for 10 years, and then stopped her contributions until age 65, she would have about $ 160,000, assuming a rate of return of 6 %. according to personal finance site Her Money. Comparatively, if Andy did the same but started at 45, he would have a little less than $ 50,000 at 65. This example does not take into account recurring monthly contributions, which would give Carolina and Andy much more money in Retirement. Check out: Retirement Tip of the Week: Why You Should Avoid Reddit-Powered Rallies With Your Long-Term Investments. Giving up retirement savings, especially through a workplace retirement plan, could also mean losing your employer match, which is basically “free money.” The amount someone can pay for student debt and a retirement portfolio simultaneously depends on several personal factors, including cash flow and other bills. But striking that balance could make the foreseeable future a little less stressful. There are a few ways to approach this. The Biden administration has extended the student loan forbearance period, which means that federal student loan borrowers do not need to make payments or interest will accrue on their debt. For some people, this could provide relief if they are losing a job, cutting wages, or another unexpected emergency. But those who can afford to keep paying their debt should consider doing so. They can continue to pay off their loans aggressively, or they can also consider putting a portion of their monthly payment toward student debt while at the same time putting some extra money into a retirement portfolio. Budgeting can be overwhelming, but having some kind of payment schedule and running an analysis of recent expenses (for those who don’t feel like they are living paycheck to paycheck) could open up the cash flow to go toward savings for money. retirement. Workers may also want to check if there are any benefits in the workplace to help pay off student debt or manage their money. Employers are beginning to recognize that their employees may need help paying off student debt, according to Fidelity Investments. Some have created programs that match student loan payments to retirement plan contributions or use a rewards program to put money toward student loans. Businesses also offer financial knowledge and planning resources to help generate emergency funds, pay off debt, and finance future financial goals.