Why Millennials Can’t Blame Student Loans for Their Lack of Retirement Savings

student loans and retirement

As a millennial, you probably haven’t saved much money for retirement.

You’re drowning in student loan debt, after all, so how can you prioritize saving?

A recent study found that your student loans might not be to blame for your lack of retirement savings.

Do student loans affect retirement savings?

To put it simply, millennials suck at saving for retirement. Only 31 percent are doing it at all, according to CNBC.

That doesn’t make them unique, though; the vast majority of Americans have little saved for retirement.

But until recently, millennials had an excuse. Unlike other generations, they had student loans to contend with. Mountains of ‘em, in fact — an average of $37,172 per borrower.

So, it seemed to make sense that they weren’t saving for retirement as aggressively as they should be.

But a 2016 study of 30-year-old workers by the Center for Retirement Research at Boston College told a different story. It found that those without student loans hadn’t saved much more than those with student loans.

Image credit: National Longitudinal Survey of Youth 1997 Cohort, via the Center for Retirement Research at Boston College

Image credit: National Longitudinal Survey of Youth 1997 Cohort, via the Center for Retirement Research at Boston College

The study called the relationship between student debt and participation in a retirement plan “small and statistically insignificant.” In other words, having less student debt didn’t make you more likely to save for retirement.

“It doesn’t seem to fit any sort of a rational model where people look at how much money they have and decide what they can afford to save for retirement and what [they need] to pay back loans,” one of the study’s authors told The Wall Street Journal. “It seems that student loans just play an outsize role in people’s head. The presence of a loan looms large over their financial decisions.”

How to save for retirement when you have student loans

Student loans are a huge burden; there’s no doubt about it. But they’re not an excuse to ignore your financial future.

Here are a few ways to start saving for retirement when you have student loans.

1. Finish your degree

As you can see from the charts above, the widest gap in retirement savings isn’t between those with student loans and those without — it’s between those who graduated and those who didn’t.

Even if you don’t graduate, you have to repay your student loans. So, do all you can to finish your degree and obtain the accompanying benefits — like the fact that people with bachelor’s degrees earn 67 percent more than those without.

2. Don’t put extra money toward loans

It’s natural to want to put extra cash toward your student debt. But it might not make the most financial sense.

To see what I mean, use our student loan payoff versus invest calculator, which breaks down the numbers for you.

Say you have $62,000 of student loans at a 5.70% average interest rate and $1,000 in retirement savings. Then, you get a raise and have an extra $300 each month.

If you put that extra $300 toward your loans, you’d pay them off in 6.3 years and save $7,558 in interest. Pretty great, right?

Not compared to what would happen if you put that extra money into a retirement account instead. If you invested that $300 per month for those 6.3 years and then let it sit for 35 years, earning a 6.00% return, you’d have a whopping $153,774 by the time you retired.

Of course, if your student debt is taking a toll on your mental health and you want to pay it off, then do what’s best for you. Just don’t assume paying down debt is a smarter option than investing in your future.

3. Automate your savings

It’s tough to care about something so far away. That’s why some people have likened the retirement crisis to climate change; since it’s not happening right now, no one is worried about it.

The solution? Don’t trust yourself to save later; instead, make saving automatic.

If you have an employer-sponsored 401(k), contribute enough to get a full match. Then, create an automatic withdrawal into a Roth IRA each month. (You can open one with Vanguard or Betterment.)

At the very least, start saving in incremental amounts with an app like Acorns or Stash.

Start your retirement fund now

How many times have you thought “I should really start saving for retirement” and then watched another episode of House Hunters International instead?

Put down the remote! You’ll never be able to afford a home on the Spanish coast if you don’t think about your future finances. When it comes to money, time is on your side.

Start at age 25, and you’ll need to save $375 per month to have $1 million when you retire. Wait until you’re 35, and that number jumps to $800 per month.

Student loans or no student loans, starting today is the only way to make that Spanish casa a reality.

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