If you’re one of the many Americans saddled with tens of thousands of dollars in student loan debt, saving for retirement may not rank high on your list of priorities. In fact, over 80% of borrowers report that loans have made saving for retirement more challenging.
While paying down student loan debt is crucial to securing financial stability, neglecting your retirement planning could have dire consequences as you age. You may need to make a few minor adjustments to your financial management strategies to balance both priorities. The following steps could help you build savings for the future, even as you manage your debt in the present.
Find the best student loan repayment plan for you
It’s essential to make at least the minimum monthly payment toward your student loans. However, if that doesn’t leave you with enough left over to save for retirement, you may want to consider a different repayment plan.
Federal student loans offer a range of strategies for making payments. With an income-driven repayment plan, for example, your monthly payment amount depends on your income, not the amount you owe. You might also choose a graduated repayment plan, which requires small payments at first that increase gradually over time.
Updating your student loan repayment plan could offer you more control over your monthly budget, leaving you with more to invest in retirement.
Start with small contributions
The sooner you begin saving for retirement, the better. Even if you don’t have room in your budget to allocate as much as you’d like right now, small contributions add up over time.
When you put off saving, you leave money on the table because retirement savings grow compound interest. That means you earn returns on your initial investment and the interest itself. For example, you invest $10,000 in a retirement account, and your interest rate is 5%. In the first year, you’ll earn $500 in interest. But in the second year, you won’t just make 5% on the original $10,000; you’ll earn 5% on the $10,500 in your account. The earlier you start, the more time you have to accumulate interest.
Take advantage of employer-sponsored retirement plans
Participating in any retirement plan your employer offers, like a 401(k) or a 403(b), is a low-barrier way to begin building your retirement funds. Pre-tax dollars from your paycheck fund your 401(k).
In most cases, employers also match your contribution up to a certain percentage, doubling your money. Because the funds come from your paycheck before taxes, they shouldn’t significantly impact your overall budget, leaving room for student loan payments.
You could get the most out of your money by contributing up to the employer’s match threshold. If you have room in your budget, try to invest at least that much. Remember, retirement savings earn compound interest; missing out on an employer match today could cost you tens of thousands of dollars in the long run.
The bottom line
Saving for retirement while paying off student loans may seem intimidating. However, a few small steps could help you lay the foundation for a comfortable retirement. As you pay down your student loan debt, revisit your finances and increase your retirement contributions as your student debt becomes smaller. That way, your student loan debt doesn’t have to hold you back from accomplishing your retirement savings goals.
