Hamilton Herald Masthead


Front Page - Friday, April 8, 2016

While paying off student loans, don’t forget about retirement

Financial Focus

Stan Russell

Even if you’ve been out of school for a few years, you may still have a vivid reminder of college: your student loan debt. Since you’ve joined the workforce, you might be paying back your loans as best you can. But can you gradually reduce your debts while still putting money away for your long-term goals – such as retirement?

Of course, you might think it’s premature to even think about retiring, since you probably have decades to go before you say goodbye to the working world. But the sooner you begin saving and investing for retirement, the more time you’ll have for your money to grow. Plus, your early start will help you avoid having to play “catch up” later.

Still, it can be challenging to juggle payments for student loans and contributions to a retirement account, especially if your loans are sizable. How can you meet these two separate demands on your income?

To begin with, you may have some flexibility in how you repay your student loan. Although you might have selected, or were assigned, a repayment plan when you first begin repaying your student loan, you can typically change this plan to accommodate your financial situation. You’ll need to contact your loan servicer for details on adjusting your repayments.

In any case, though, if you have a large student loan, it’s safe to say that you will be paying it back for quite some time. So, rather than wait for this debt to be cleared before you start saving for retirement, think about how you can take action now.

For one thing, take full advantage of your 401(k) or similar employer-sponsored retirement plan. This type of plan certainly offers some key benefits: Your earnings can grow on a tax-deferred basis, and you typically contribute on a pretax basis, which means the more you put in, the lower your taxable income. Plus, you can fund your plan with a variety of investment choices. But for you, perhaps the biggest benefit is that your employer simply takes the money from your paycheck before you get it and puts it into your account. You don’t have to pay all your bills first and then hope you still have something left to invest – it’s already been done for you. Ultimately, contributing to your 401(k) can be a “painless” way of investing, and it may make it easier, psychologically at least, for you to pursue the two goals of paying your college debts and saving for the future.

If you don’t have a 401(k) or similar plan, you can still follow the same principle of essentially freeing yourself from initiating investment moves, simply by setting up a bank authorization to automatically transfer money from your checking or savings account into an IRA, which offers some of the same features as a 401(k). You can start with relatively small amounts – perhaps as little as $50 per month – and increase your contributions as your income rises.

As you well remember, college wasn’t cheap. And you don’t want to make it even more costly by having your student loan payments interfere with progress you can make toward your retirement funding goals. So, think about “automating” the contributions to your retirement accounts. The effort – or rather, the effortlessness – on your part can be well worth it.

This article was written by Edward Jones for use by your local Edward Jones Financial Advisor (member SIPC). Contact Stan at Stan.Russell@edwardjones.com.