3 Tips To Save for Retirement While Making Student Loan Payments
Retirement planning is the definition of the long game. You’re making payments into some form of retirement savings account to secure your future, sure, but what about the student loan payments you have to make now? Balancing paying now or paying later can be a tightrope act, but putting the work in presently can save you heartache with your finances down the road.
Read: The Simple, Effective Way To Fortify Your Retirement Mix
3 Tips for Saving for Retirement While Repaying Student Loans
Many types of IRAs or personalized retirement accounts can help you save for retirement. Whether it’s a traditional IRA or 401(K) plan, you have options on how to add to your retirement savings even while you pay off your student loans. Here are a few tips to help you achieve both financial goals.
Take advantage of the full employer match
Create a budget
Edit your expenses
1. Take Advantage of Full Employer Match
Many employers offer to match contributions you’ve made to your 401(K) or 403(B) accounts out of your salary. Essentially, this means you should pay the maximum amount, so your employer pays the most in matching contributions to your retirement savings account.
This is money actively being saved by deducting the funds straight from your paycheck — since it’s out of sight, out of mind, it’s an easy way to save for retirement. Outside of that essential expense automatically being taken care of, you can then focus on allocating other funds from your paycheck to your student loan bills. You can even automate these payments as well to follow the same model.
Catch-up Contributions
Another form of contribution is called catch-up. You are eligible for these contributions if you are age 50 or older. You can get a tax break as well as build your portfolio by paying an additional $6,000 to $7,500 into your 401(K) account per tax year. The tax break depends on the year you started the contributions. Here’s a look:
$6,000: 2015 to 2019
$6,500: 2020 to 2021
$7,500: 2023
2. Create a Budget
There are many ways to build a budget that functions for your specific needs. A good way to jumpstart how you save and how you spend is to break down your budget into percentages. A classic version of this would be the popular 50/30/20 rule of budgeting. This rule allocates your monthly income in the following ways:
50% for needs or essentials such as rent, mortgage, utility bills and groceries.
30% for discretionary spending such as eating out or clothing purchases.
20% for savings such as an emergency fund or mutual fund.
To create a budget that both covers your student loan debt and still ensures you are contributing to your retirement account, you could do a play on this budgeting rule. Here’s an example:
40% for needs or essentials such as rent, mortgage, utility bills and groceries.
30% for discretionary spending such as eating out or clothing purchases.
20% for your IRA, 401(K) or other retirement savings account.
10% for savings such as an emergency fund or mutual fund.
3. Edit Your Expenses
Editing your expenses can boil down to editing your lifestyle. As student loan payments begin back up, you may need to see where you can cut spending, or at least cut back. Doing so can help you plan for both student loan payments and saving for retirement. Here are some tips as to where you can whittle down your expenses:
Cancel any unused subscriptions.
Make your meals or coffee at home.
Get a budget-tracking app so you can see exactly where your money is going each month.
Attend free events instead of buying concert tickets.
Switch to generic brands, or grocery store brands when shopping.
Negotiate your bills such as credit cards or cable.
Quit or limit expensive habits such as drinking or smoking.
Final Take To GO
Giving yourself time to plan your finances when you are 37 can make a difference for when you reach age 67. The average student loan payment is estimated to be around $503 per month which can be a good-sized chunk of your paycheck. However, there are ways to both spend responsibly and save creatively, so you should be able to save for retirement while you also make student loan payments.
FAQ
Here are some answers to frequently asked questions about saving for retirement while making student loan payments.
Do your student loans go away after 20 years?
Though it is estimated it takes the average borrower about 20 years to repay their student loan debt, any outstanding balance that has not been paid after that period will be forgiven for undergraduate studies. Outstanding loan balances for graduate studies will be forgiven after 25 years.
What is the average student loan monthly payment?
The average student loan monthly payment is about $503, according to the Education Data Initiative. This is based on factors such as average payments and median average salaries of college graduates. The study also concluded it takes the average graduate an estimated 20 years to repay the money they borrowed for their student loans.
What are some ways to save while paying off student loans?
Here are some creative ways to save while trying to pay student loan debts:
Cancel any unused subscriptions.
Make your meals or coffee at home.
Get a budget-tracking app so you can see what you are spending each month, and where there may be room to edit or cut back.
Try money-saving challenges.
Attend free events instead of buying concert tickets.
Switch to generic brands, or grocery store brands when shopping.
Negotiate your bills such as credit cards or cable.
Quit or limit expensive habits such as drinking or smoking.
What does IRA stand for?
IRA stands for individual retirement accounts or individual retirement arrangements. A traditional IRA is a tax-advantaged personal retirement savings plan where contributions may be tax deductible. Traditional or Roths often earn compound interest which is also beneficial for your savings and income taxes.
Is saving $1,000 a month good for retirement?
Yes, saving $1,000 per month is a great starting point for retirement savings. This is true especially if you are age 30 or younger -- your savings would be near the $1 million mark by the time you reach retirement age if you stay on track.
Information is accurate as of Sept. 21, 2023.
This article originally appeared on GOBankingRates.com: 3 Tips To Save for Retirement While Making Student Loan Payments
