Putting hundreds of dollars a month toward student debt may leave some borrowers unable to save for retirement. Here’s how to make progress on both goals.
It's understandable to be eager to get out of debt, but if you delay saving in favor of accelerating your student loan repayment, you'll miss out on the decades of compounding growth it takes to accumulate a healthy retirement savings. In fact, the younger you begin saving,, many companies will start to offer retirement match contributions when employees make their student debt payments.
Paying down your debt is a form of saving, said Boston University economist Laurence Kotlikoff. That's because it'll free up more money for you down the road.At the same time, you want to at least contribute enough to your workplace retirement account to, if they offer one, he said. The most common matching formula is 50 cents for each dollar contributed by the employee, up to 6% of pay, according to research from the Plan Sponsor Council of America.
You won't be able to get that kind of return anywhere else, experts say. And if you don't contribute, you miss out on those matching dollars.Experts recommend examining your spending over the last few months and seeing where you can cut back as the resumption of student loan payments nears. Cutting out even a few small expenses, like a second coffee a day or a few subscriptions, can free up extra money you can redirect to bigger financial goals.
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