How to Save for Retirement … When You Have Student Loans

Pauline Millard
Posted

If you have student loans, you already know they can be overwhelming. But as any responsible spender knows, they  aren’t the only demand on your budget.

Along with rent or a mortgage, the day-to-day business of living and any credit card debt you have, there’s also saving for retirement, that period of 20 years—or far longer—during which you may need to live almost completely off the money you’ve saved. The thing about retirement savings is that there’s no substitute for starting early—and it can be incredibly difficult to make up for lost time.

RELATED: 40 Financial Things You Should Know By 40

If you’re wondering how on earth you’re supposed to put money in your IRA or 401(k) when your student loans have already laid claim to your budget, you’re not alone. In fact, there are plenty of questions LearnVest Certified Financial Planners™ hear on this topic every day: Is one goal more important than the other? Which should I pay first? And if I don’t have enough money to pay both … which should I choose?

We asked Katie Brewer, CFP® with LearnVest Planning Services, for help with one of the hardest money to-dos of all: Prioritizing which of these financial goals should receive your hard-earned dollars.

First, Take a Closer Look at Your Student Loans

“When it comes to retirement and paying student loans, it doesn’t have to be one or the other,” says Brewer, “And in fact, it shouldn’t be.” She explains that loans and retirement savings both feel urgent because, in a sense, both are urgent.

Student loans are a pressing debt that needs to be repaid, and missing a payment has the potential to tank your credit score (and after nine months of not making full payments, you go into default, which tanks your credit score and may turn your account over to a collections agency, among other similarly unpleasant things). Your first step is figuring out where you stand.

1. Know What You Owe. Brewer says student loans are best tackled with a routine. “Approach your student loan payment like your rent: It’s a fixed expense you have to pay every month, so it has to fit into your budget,” she says. “If you are struggling to make the minimum payments, and you’re okay with extending your repayment period, call your lender and see if there’s anything they can do to help reduce your monthly payments. Once you have that number, it can be a good idea to set up auto-payments so that you never miss one.” As with all auto-payments, these should come from your checking account, which should be monitored to make sure payments are being made and that there’s enough money in your account to cover all of your costs.

Generally speaking, Brewer cautions, by no means should your student loans be deferred or put into forbearance in order for you to contribute to retirement. “Many types of loans still gather interest during deferment or forbearance, which means you’ll have to pay more later,” she explains. “These measures aren’t for people who are working on prioritizing their savings—they’re for people who truly can’t afford their payments, as a temporary fix to keep them out of default.” If you’re having serious problems finding the money to pay your loans, learn more about those options at Student Aid.

RELATED: Checklist: I Want to Pay Off My Student Loans

2. Find the Best Way to Pay. For federal loans, there are actually seven different repayment plans, and they aren’t one size fits all. While all borrowers are automatically enrolled in a standard repayment plan if they don’t choose otherwise, to make your money go furthest, you should be using the plan that best fits your needs. If you need help, consult our guide to federal student loan repayment plans, which breaks down how each plan works, as well as its pros and cons.

If you have several federal loans, consider consolidating, which means combining all of your loans into one monthly payment. You can consolidate private loans as well, but they’ll remain separate from any federal loans you might also have, meaning that if you have both federal and private loans, the fewest number of payments you would be able to make is two. There are caveats to consolidating—for instance, it has the potential to lengthen the repayment period—so you’ll want to consider carefully whether it’s the right move for you (the Student Aid checklist can help with that). If you do want to consolidate, apply through the government’s Borrower Services website.

RELATED: Money Mic: I’m Scared to Pay Off My Student Loans

3. Portion Out Your Budget. The 50/20/30 rule tells us that at least 20% of our budgets should be dedicated to our financial priorities—the payments that build a secure financial future, like loan repayments and retirement savings. “Especially for people with outsized student loan payments, designating a full 20% of their monthly budget to financial priorities isn’t usually the problem,” explains Brewer. “More often, they run into trouble when these large payments take up that entire 20%, and then they still need to find room in their budgets to save for retirement.” The free LearnVest Money Center can give you transparency into how much of your budget goes to financial priorities, and where you may be able to find a few additional bucks to save for retirement.

Now, onto your retirement strategy.

  • Cheryl

    I’m 53 and have $85,000 in student loans…..Help!! I still max out my 401B putting $23k yearly but feel like I will never pay off my students loans.

  • http://home-loans-info.livejournal.com/ Mortgage Investors

    Brewer cautions, by no means should your student loans be deferred or
    put into forbearance in order for you to contribute to retirement.

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  • Mrs Elibat Ritalia

    Hello friends!!! My name is Mrs Elibat Ritalia a citizen of USA. i want to testify of the good Loan Lender who showed light to me after been scammed by 4 different Internet international lender, they all promise to give me a loan after making me pay alot of fees which yield nothing and amounted to no positive result. i lost my hard earn money and it was a total of 11,000USD. One day as i was browsing through the internet looking forsterated when i came across a testimony man who was also scammed and eventually got linked to a legit loan company called Tony Harton Loan Company (tonyharton2@gmail.com) where he finally got his loan, so i decided to contact the same loan company and then told them my story on how i have been scammed by 6 different lenders who did nothing but to course me more pain. I explain to the company by mail and all they told me was to cry no more because i will get my loan in their company and also i have made the right choice of contacting them. i filled the loan application form and proceeded with all that was requested of me and I was given a loan amount of $100,000.00 Dollars by this great Company (Tony Loan Finance} managed by Mr. Tony Harton and here i am today happy because Mr Tony Harton COMPANY has given me a loan so i made a vow to my self that i will keep testifying on the internet on how i got my loan. Do you need a loan urgently? kindly and quickly contact Mr Tony Harton Loan Company now for your loan via email: tonyharton2@gmail.com

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    Mrs Helley Jenna

  • Mrs Helley Jenna

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    Mrs Helley Jenna

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    Hello everyone!!!

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    .