In America, a college education is considered a stepping-stone to a financially successful life. And while it’s true that college graduates earn more once they enter the workforce and have a higher lifetime earnings potential, the way we pay for college today still creates a huge financial hurdle when it comes to saving for retirement.
Over the last several years, each graduating class has set a new record for student loan debt. Depending on where you get your numbers, the average amount of student loan debt for graduates this year ranges from nearly $27,000 to more than $37,000!
Because of that debt, almost 75% of people with student loans say they have put off saving for retirement because of their debt load. That would be bad enough, but according to a report by Morningstar, every dollar in student loan debt reduces your retirement savings by 35 cents—that’s $8,750–12,950 based on student loan averages.
Why the Math Doesn’t Work
In an attempt to make up that difference, most financial experts recommend saving for retirement while you pay your student loans so you don’t miss out on compound investment growth in the early years of your career.
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Mathematically, that makes sense. Compound growth is a big deal when it comes to saving for retirement, and an investing professional can show you how to make it work for you . . . when the time is right.
If you have student loans though, now is not the time. That’s because there’s no way to mathematically calculate the drain student loans represent in your life. Until your student loan debt is gone, it will be a deciding factor in every choice you make—not just how and when you save for retirement.
- Four in 10 people with student loans say they have had to take a job that doesn’t even require their college degree just to pay the bills.
- Nearly two-thirds of those with student debt said their debt has affected their ability to make larger purchases, like buying a car.
- Three-quarters said their loans prevent them from buying a home.
- Almost 30% say they have put off marriage and 43% said they’ve delayed the decision to start a family because of their student loans.
You Can’t Do It Over
As a result of these difficulties, 71% of people with student loans say if they could do it over again, they would change their college experience and choose less expensive options.
But here’s the deal. You can’t go back and do it over. All you can do is attack your debt today and every day until it’s gone. Focus all your energy and extra income on getting rid of your student loans as quickly as you can.
But You Can Still Get It Right
Let’s say you’re 35 years old with $15,000 in student loan debt. You’ve been dragging that student loan around with you for 10 years!
You could keep making your $300 monthly payments for the next five years—and continue to put off your retirement savings. Or you could get angry at that debt and attack it with $500 extra each month.
It may not be easy to do, especially with the additional financial obligations of a family. But less than two years of sacrifice will change your life forever by doing two things: First, it will bring peace and security into your life. Without that payment hanging over your head, you can finally make decisions based on what’s best for you—not on what enables you to make your student loan payment.
Second, being debt-free sets you up to build wealth for retirement. When you’re debt-free in just a couple of years, you can begin investing 15% of your income for retirement. If you make the median college grad income, that’s $750 per month. By the time you’re 65, you could have $1.3 million for retirement!
Get Going on Your Retirement Plan
Don’t let your student loans hold you back. Take control of your retirement outlook today! Contact a SmartVestor Pro near you who will answer your questions about retirement investing and help you make informed decisions about your money. Try SmartVestor today!