Your Student Loans Might Stunt Your Retirement Savings — No Matter How Large or Small They Are

If you’re saddled with student debt, you’re in good company. It’s estimated that over 44 million Americans are on the hook for student loans and that cumulatively, we owe close to $1.5 trillion. Ouch. But it’s not just your near-term finances those loans might affect. If you’re not careful, your student debt might hurt your retirement savings — no matter how much of it you happened to rack up.

Will your student loans set you back?

A report by Morningstar released a few years back found that for every dollar of student debt you accumulate, you’ll save $0.35 less for retirement. In other words, rack up $50,000 in debt, and you might retire with $17,500 less after all is said and done.

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New data from the Center for Retirement Research at Boston College indicates that the mere presence of student loans can lead to a reduction in retirement savings. In a new report, workers with student debt had much lower 401(k) balances by age 30 than those without student debt. These results, however, were consistent regardless of whether those student loans were large or small. In other words, it could be that there’s a psychology at play — that those who owe money for college are more likely to use those loans as an excuse to put off retirement savings.

Don’t let your retirement savings suffer

It’s easier to save for the future when you don’t have a $300-per-month loan payment holding you back. No one’s going to argue with that. But what you should realize is that you can pay off your debt and build a nest egg simultaneously. In fact, it’s important to concentrate on the latter early on in your career, because the sooner you start funding an IRA or 401(k), the more time you’ll give that money to grow.

Check out the following table, which shows what a monthly contribution of $300 might grow into depending on the length of your savings window:

If You Start Saving $300 a Month at Age:

Here’s What You’ll Have by Age 65 (Assumes a 7% Average Annual Return):

25

$719,000

30

$497,000

35

$340,000

40

$228,000

45

$147,000

50

$90,000

TABLE AND CALCULATIONS BY AUTHOR.

As you can see, you’ll enjoy the highest level of gains by giving yourself more time to save. And that means you’ll need to push yourself to set aside money for the future without letting your loan payments fall by the wayside.

How can you pull that off? It’ll probably boil down to cutting expenses or earning more money. Or doing both simultaneously. For the former, take a look at your budget and see about reducing your spending. You might slash a few minor expenses, like your gym membership and takeout meals, or you might lower a major expense, like your rent payment. It doesn’t matter where you eke out that savings as long as you find that you’re freeing up some cash.

For the latter, you can try marching into your boss’s office and demanding a raise. But if that doesn’t work (and it probably won’t), there’s always the option to take on a side hustle. Having a second gig on top of your main job will put extra money in your pocket that isn’t already earmarked for something else, which means you should have no problem using it to fund your nest egg. In fact, 14% of workers with side hustles are holding down those additional jobs for this very purpose, according to recent data from the Indexed Annuity Leadership Council.

While keeping up with a monthly loan payment is no easy feat, you shouldn’t let your retirement savings suffer because of your student debt. You can pay off your debt and build a nest egg at the same time. You just need to be willing to make the effort.

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