How to pay off student debt and save for retirement
BOSTON - Student loan repayment is back in motion. For the last month or so, borrowers have had to readjust their budget to make sure they can make payments again. This leaves some borrowers in a pretty tricky spot, trying to figure out if they should prioritize paying of their school debt or saving as much as they can for retirement.
If there's one thing you take away from this article, it should be this: you can do both. You can save for retirement and continue to pay down your student debt. Right now, some of you are reading this and you might be saying, "How?"
Sarah Foster, an analyst at Bankrate, said you don't need to stop paying off your student loan debt altogether, you just don't need to pay it off as aggressively as you may be doing right now.
"But I'm trying to get rid of this school loan debt ASAP!" is what you may be thinking to yourself right now.
Here's an example from Foster that will help you to better understand her suggestion.
"I was doing some calculations too, and I was trying to see if someone at 22-years-old, if they were to stash $200 a month into their retirement account, assuming an 8% annual return, which is kind of how retirement accounts shake out over your lifetime. You would make about $1.2 million by the time you were 70. But if you were to cut that amount every month for the first 20 years of saving for retirement, which tends to be the average student loan repayment plan, you'd only have about $700,000 by the time you're 70," said Foster.
So, where do we go from here? Foster said think about what she calls opportunity costs:
• Explore the repayment plans to see if you're eligible of any of them (that allows you to free up some of that money for retirement savings)
• Contribute enough to your retirement plan to get your employer's full match
• Re-adjust your budget to see if there's any place for you to cut expenses
And one more thing you may not have thought about: Check with your employer to see if it offers any student debt relief options.
"It can be very difficult to really know how to navigate both goals, but the best step you can take is just making sure that you're going into it eyes wide open. Make sure you know the benefits that you have on the table with your company. Make sure you're taking advantage of them and not leaving money on the table," said Foster. "Once you do the research, the rest of it can work itself out."