Student loan debt is the enemy of many millennials, but it’s becoming a problem for some older Americans, too. According to the Consumer Financial Protection Bureau, recent data shows that between 2012 and 2017 in more than three-quarters of states, the total outstanding student debt held by borrowers over age 60 increased by more than 50 percent. For many of these borrowers, this student loan debt is money borrowed for their children’s or grandchildren’s educations.
No matter your age, it can be hard to know which to prioritize – paying off student debt or saving for retirement. Although it’s tempting to throw money at debt first and put off saving, building your retirement funds early can help you earn more with years of compound interest – in other words, it’s important to start or continue saving now.
Here are a few ways to save for retirement even while paying off student loans.
Rein in spending – Evaluate your current spending and identify areas to cut back. Food and entertainment costs can often be reduced with minimal impact. Funnel your savings toward retirement and loans.
Automate it – Make the process easier with “auto-pilot.” Employer-sponsored retirement plans automatically deduct money for your retirement savings, so you save without having to think about it. If your employer provides matching contributions, contribute enough to earn the full match. You can also automate loan payments. Some lenders lower your interest rate when you do!
Take advantage of tax breaks – When you make contributions to tax-deferred retirement savings accounts, such as a 401(k) or a traditional IRA, you can lower your taxable income.* Plus, your retirement savings can grow faster with tax-deferred compounding.
With a lower taxable income, you’ll have less money going to taxes. Put that extra cash toward paying your debt. You’ll enjoy additional tax benefits when you claim a student loan interest deduction of up to $2,500 on your tax return, if you’re eligible.
Allocate extra funds – Put any money outside your regular paychecks – a tax refund, bonus or other windfall – directly toward student loans or retirement savings.
For help determining the best savings and payment plan for you, request a free consultation with an investment professional at Hanscom Financial Services. For details visit www.hanscomfinancialservices.org or call 781-698-2236.†
There are many important financial milestones for consumers in their 20s and 30s. Through May 1, 2019, download our free webinar, Planning for Money Milestones, where we help prepare today's "Millennials" for a positive financial future without sacrificing fun. We cover SMART goals, getting organized financially, building a budget, controlling expenses, wiping out debt, and much more! After you register, you'll receive a confirmation email containing information about joining the webinar.
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* Taxes will be due at ordinary income tax rates upon withdrawal from a traditional individual retirement account (IRA) or employer-sponsored retirement plan. Premature withdrawals (generally, those made before age 59½) may be subject to a 10 percent tax penalty, too (does not apply to 457 plans).
†The investment products sold through LPL Financial are not insured Hanscom Federal Credit Union deposits and are not NCUA insured. These products are not obligations of the Hanscom Federal Credit Union and are not endorsed, recommended or guaranteed by Hanscom Federal Credit Union or any government agency. The value of the investment may fluctuate, the return on the investment is not guaranteed, and loss of principal is possible.
Securities and Advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC.
Hanscom Federal Credit Union and Hanscom Financial Services are not registered broker/dealer and are not affiliated with LPL Financial.