Don't Let Student Loan Debt Derail Your Retirement

Don’t Let Student Loan Debt Derail Your Retirement

by Aug 9, 2018

When you see student loan debt discussed in the news, it’s often in the context of recent college graduates struggling to make their payments, afford rent and mortgages, or make any kind of financial progress in their lives.

While all those things are true, what you may not know (unless you’re living this situation) is that student loan debt is also having a huge impact on older generations who are trying to plan for retirement.

A recent report by the Department of Education shows that federal student loan balances for Americans age fifty and older grew at a faster rate in the first quarter of 2018 than they did for those much younger. In fact, the outstanding balance for older debt carriers is over $262 billion dollars right now.

As you can imagine, carrying significant student loan debt into the later stages of life where you’re thinking about retirement can make things considerably more difficult.

How Student Loan Debt Affects Retirement

According to a study by the Consumer Finance Protection Bureau, Americans age fifty to fifty-nine who have student loan debt have saved $10,000 less in their 401(k) plans and $25,000 less in their IRAs than those who don’t have student loans.

Even worse, almost forty percent of borrowers age sixty-five and older are in default–which is especially troubling considering the government can garnish Social Security benefits if they don’t get their money back.

The takeaway here is, unfortunately, pretty scary. Taking on student loans can decrease your ability to put money away for retirement, and if you fail to pay off the debt before or after you retire, the government has ways of taking a portion of your income to recover the loans.

Avoid A Worst-Case Scenario

Typically those approaching retirement and still struggling with student loan debt fall into one of two categories:

  1. Paying Your Own Debt: If, for whatever reasons, you are unable to repay your loans before you want to retire, you should immediately get assistance from a financial planner to examine your situation and figure out what options are available to you.

  3. Paying Your Children’s Debt: If you’ve co-signed for your children’s student loans and are now responsible for making payments, it’s unlikely you’ll be able to manage the burden without help from them. Get as much information about the loans as possible, speak with your children, and seek professional guidance.

Co-signing for loans, even if they’re for your children, is always a risk. Even if they come out of college and find good jobs, there’s no way to guarantee against outside circumstances that may force you into a position of being responsible for their student loan debt.

If you’re struggling with your own loans, as a great many of us are, the sooner you recognize the problem and seek assistance to find a solution, the better off you’ll likely be.

Consider looking into extended or income-driven repayment plans, which base your payment size on how much money you make. If you co-sign a loan, consider insurance. Both life and disability insurance can help provide the funds to repay a loan in the event a borrower dies or becomes disabled. Think of it as a safety net so that your financial security isn’t at risk if the unthinkable happens.

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