Stashing away at least some earnings in a 401(k) account despite student loan debt is more important than ever before, and the American Financial Benefits Center (AFBC) reminds advisors that it’s something to emphasize with plan providers and participants.
In a recent AFBC survey, about half of respondents revealed that they put off saving in lieu of paying off student debt.
Citing the power of compound interest, finance experts instead recommend a strategy that involves simultaneously paying down debt and saving for the future.
“The decision to focus full-force on student loan payoff may be an emotional one, but retirement is important, too,” Sara Molina, Manager at AFBC, said in a statement. “Student loans paid for an education, but saving for retirement is like investing in your future. It’s worth it to focus on that as much as possible.”
The AFBC report touts federal income-driven repayment (IDR) plans as a great option for borrowers concerned about being able to afford student loans, as well as 401(k) contributions. This option adjusts a borrower’s minimum monthly repayment amount based on income and family size, most often resulting in lower required payments per billing cycle. And there’s an added perk to IDRs: after 20 or 25 years of qualifying payments, remaining loan balances may be forgiven.
In terms of the amount of money retirement savers should sock away in a 401(k), finance experts agree that “[i]ndividuals should aim to set aside at least as much as their employer will match.”
“Retirement may feel far away, but it’s not as far as you think,” said Molina. “At AFBC, we hope that our clients have more financial freedom to focus on saving for retirement. We hope they are realizing the benefit of doing so and feel that they are on track in their financial lives.”
Jessica Claeys is an editor, writer, and graphic designer, who has been creating both print and digital marketing and communications content for 10+ years.
Jessa Claeys is a licensed insurance producer in the state of Colorado and an insurance editor for Bankrate. She currently covers auto, home and life insurance with the goal of helping others secure a healthy financial future. Jessa has over a decade of experience writing, editing and leading teams of content creators. Her work has been published by several insurance, personal finance and investment-focused publications, including BiggerPockets, 401(k) Specialist, BP Wealth and more.
