How To Successfully Balance Saving For Retirement and Paying Off Student Loans
Guest post by Nicholas Green
In 2019, almost 69% of the students in our country took out student loans. And you might be shocked to know, in 2020, the total student loan debt in our country stood around $1.56 trillion!
So, most likely, these people will have to shell out a substantial amount of their paychecks to pay off their student loan debts. And eventually, they might start saving for their golden years at a much later age!
Whereas, financial experts often advise that you should save for your golden years right from the day you receive your first paycheck! And it’s very important to save for your retirement if you want to relax during your golden years!
But paying off your student loan debt can be an obstacle to your saving for retirement! On the other hand, you have to pay off your student loan too!
So, is there any way-out?
Don’t worry! Here are some of the best possible ways to successfully balance saving for your retirement and paying off your student loan!
Look for different strategies to pay off your student loans
You can opt for any one of the following strategies to pay off your student loan faster and lower your monthly payments too! And you can stash those saved dollars to your retirement savings!
Here you go!
1. Make an extra payment every month
Well, there is no prepayment penalty for student loans. So, you can pay some more bucks than your monthly payments. Doing so can help you to pay off your student loan earlier and save money!
2. Refinance your student loan
Do you have a decent credit score? If yes, you can try refinancing your student loan. Refinancing means to replace your multiple student loans with a single private loan, preferably at a lower interest rate. So, it can help you to pay off your student loan faster.
Firstly, check the rates with different lenders. Go for the lender who is offering you the lowest interest rate.
Besides, I would suggest you check other information too about the lender, like, repayment protection, customer service, etc. If you find these parameters satisfactory, you can go ahead with the refinancing of your student loan.
3. Opt for an income-driven repayment plan
Are your loan payments too high compared to your income?
If yes, you can opt for an income-driven repayment plan offered by the Department of Education. But remember, income-driven repayment plans are applicable to federal student loans only!
Depending on your family size and income, you will be considered eligible for income-driven repayment plans. If you qualify, it can reduce your payments to as low as 10% to 20% of your discretionary expenses.
One recent update is, due to the outbreak of COVID-19, President Trump has signed the CARES Act. It can bring you some relief like:
If you have taken federal student loans, you will receive a 6-months forbearance effective from March 13. It means, no payments will be due during this period. And no interest will accrue during these 6 months.
So, if you can pay off your student loan during this time, it will go towards your principal amount. Thereby, it can help you to save money.
If you have opted for a private student loan, please check with your lender! Many lenders are offering up to 12 months of forbearance or deferment.
Well, I hope, now you have learned some of the ways to pay off your student loans strategically! But as I said before, you need to save for your retirement simultaneously. So, here are some of the tips you can follow to stash money for your retirement savings!
Calculate how much you should save for retirement
Many financial advisors suggest that you should save 70% to 80% of your pre-retirement income. It means, if you make $100,000 a year, you should save at least $70,000 to $80,000 per year in your retirement savings.
Or, you can follow another rule of thumb which can help you determine how much money you will need during retirement. Calculate your annual expenses and multiply it with 25. The outcome is the amount of money that you need to save so that you can safely withdraw 4% of that amount every year after retirement.
The amount of money might seem huge to you! But trust me, buddy, if you start saving for your retirement earlier, you can save a substantial amount!
Max out your 401k contribution and take the advantage of the employer match
Most of the employers offer 401k so that their employees can save and invest for retirement. And many employers offer a matching contribution too!
In 2020, you can contribute up to $19,500 to your 401k. So, I would suggest you max out your contribution to 401k.
And if your employer offers a matching contribution, that’s great, buddy! In most cases, employers offer a match of about 50% of your contributions. Eventually, more funds will get stashed to your retirement account.
The bottom line is, you need to learn how to pay off debt strategically and utilize your money for retirement savings! And I hope that following the above tips can help you to balance paying off your student loans and saving for retirement simultaneously!
About the author: I’m in the pursuit of an idyllic life. I’m a husband, father of three daughters, business coach, content creator, and blogger. I interest myself in researching about financial topics and lifestyle subjects.