The most recent statistics paint a pretty dim picture when it comes to both student debt and retirement savings. According to a survey by the Transamerica Center for Retirement Studies, the median retirement savings by Americans is less than $100,000. And that number gets more and more concerning when you take into account that some older Americans have so little stashed away.
As far as student debt goes, the news isn’t much better, unfortunately. Americans are more burdened by student loan debt than ever. Among the Class of 2018, 69% of college students took out student loans, and they graduated with an average debt of $29,800, including both private and federal debt. That’s quite a heavy cross to bear — financially speaking, which is why almost half of new graduates are asking about debt relief programs instead of retirement benefits when they enter the job market.
College is becoming more and more expensive. The average published tuition and fees at public four-year colleges increased by 13 percent since last year. Think about what that means when you’re going on interviews and handing out resumes, trying to find a job. It’s hard to think about retirement when all you can focus on is getting a job to pay off your overwhelming student loans.
A recent graduate stepping out into the workforce is probably eager to get out from under the pressure cooker of mounting debt as quickly as humanly possible. Student loan debt is something that can follow graduates for the rest of their lives if they don’t actively work to pay it off quickly and not just make minimum payments on the interest of the loan.
But perspective is a healthy thing, especially for those with youth on their side. Keep in mind that when you’re young you have the incredible benefit of time to save for your retirement. More good news is that employers actually have a positive reaction to prospective employers asking about benefits of any kind, including student debt programs because it shows a sense of responsibility and initiative, as well as foresight.
Currently, only 3 percent of employers offer student debt relief programs, but that number is projected to go up. It's certainly desirable to have a 401k with monthly contributions growing your retirement fund, especially if there is an employer match. You would be wise not to leave that money on the table.
Retirement contributions typically offer tax breaks, company matches, and future compounding that are worth far more than the interest saved by accelerated student loan repayment. So it becomes an argument of pure mathematics at that point.
The choice then becomes this: Do you forego your retirement benefits so that you can pay off your student loans? Or do you build a healthy 401k and manage your college debt by yourself? That’s assuming of course that your employer offers both benefits.
The answer may be that you actually don’t have to choose because you can do both. If you choose to go with the student debt relief program, then make sure that you’re at least contributing to a Roth IRA or some version of a personal retirement fund. On the other hand, if you take advantage of your employer-matched 401k program, then there are multiple student debt relief programs available to you elsewhere.
Either way, if you’re considering the issues of managing your debt and planning for your financial future — this is a good way to enter the workforce.
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC