Juggling the monthly payments of student loan debt is often the leading factor that causes millennials to put off saving for retirement. While young professionals are always advised to save now rather than later, a recent study from Morningstar shows the impact student loans can have on retirement savings.
According to the new report, which includes data from the Federal Reserve, each additional dollar toward student loan debt decreases your retirement savings by 35 cents. That means, someone with $100,000 in student loans can be set back by $35,000 in retirement funds.
With the average student loan debt for recent graduates having reached a little more than $35,000, the likelihood of millennials saving for retirement is slim. According to a Bankrate survey, 18% of adults between the ages of 18 and 29 say they owe too much in student loans to even consider saving for retirement.
While the idea of getting rid of your student loans quickly sounds appealing, putting all of your money toward paying extra on your loan is not exactly the smartest thing to do. Pace yourself with your payments and if your budget doesn’t allow you to give more than the minimum required then don’t force it.
According to a breakdown by Bankrate, a professional who starts saving for retirement at 25, putting away just $2,000 a year for 40 years, will earn around $560,000 in savings, assuming earnings grow 8% annually. If a professional waits until they’re 35 to save, putting away the same $2,000 a year but for 30 years instead, they will end up with less than half the same amount of money at $245,000.
For young professionals who are looking to save on retirement now, be sure to enroll in your company’s 401(k) plan and take advantage of any matching they offer. Also, with more companies helping employees to pay off student loan debt, be sure to ask your employer if this option is included in your benefits package.