Paying student loans and saving for retirement
How you can tackle both
Student loan debt is the oft-touted enemy of millennials, but it's becoming a problem for a growing number of older Americans, too. According to the Federal Reserve Bank of New York, nearly 17 percent of student loan debt is currently held by borrowers age 50 and older. For many of these borrowers, this student loan debt is money borrowed for their children's or grandchildren's educations.
Whether you've just left school or are getting ready to retire, it can be hard to know which to prioritize — paying off student debt or saving for retirement. Although it's tempting to simply throw all of your money at debt first and worry about saving later, saving for retirement early can help you earn more with years of compound interest — making the need to save now important.
If you need to pay off student loans as well as save for retirement, there are a few ways you can do so:
Rein in spending — Evaluate your current spending and identify areas where you can cut back. This may mean buying less expensive food items, cutting the cable or even turning to public transportation for your work commute. Funnel your monthly savings toward retirement and loans.
Automate it — You can make saving for retirement and paying student loans easier by making use of "auto-pilot." Employer-sponsored retirement plans automatically deduct money for your retirement savings, making it easier for you to save without having to think about it. If your employer provides matching contributions, make sure you're contributing enough through payroll deduction to earn the full match. You can also automate payments for student loan debt with many lenders — many will even offer a lower interest rate when you do so!
Take advantage of tax breaks — Tax advantages are available both for your retirement savings and paying down your student loans. When you make contributions to tax-deferred retirement savings accounts, such as a 401(k) or a traditional IRA, you can lower your taxable income.* With a lower taxable income, you'll have less money going to taxes and more that you can put toward paying off student debt. Plus, your retirement savings can grow faster with tax-deferred compounding. You'll enjoy additional tax benefits when you claim a student loan interest deduction of up to $2,500 on your tax return, if you're eligible.
Allocate extra funds — When you receive extra money such as a tax refund, bonus and other cash windfall, consider putting it directly to paying down student loans and saving for retirement so you can get an extra boost.
If you're looking for a great way to earn a little extra income on your savings, Unity One is currently offering an 18-month Certificate of Deposit special for a limited time only.
* Taxes will be due at ordinary income tax rates upon withdrawal from a traditional individual retirement account (IRA) or employer-sponsored retirement plan. Premature withdrawals (generally, those made before age 59Â½) may be subject to a 10 percent tax penalty, too (does not apply to 457 plans).