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Data and Research November 23, 2015
Participants Lose Out With Focus on Student Debt
A new LIMRA study finds workers who choose to pay down debt
over saving for retirement fall way behind their peers by age 65.
Reported by John Manganaro
It’s almost hard to believe, but LIMRA Secure Retirement Institute research finds paying down $30,000 in student loan debt, if prioritized over retirement savings, can rob a given worker of up to $325,000 in potential savings by retirement.
The underlying research focuses on Millennials who begin their careers with at least $30,000 in student loan debt and choose to pay this down before turning to retirement savings. When compared with the saving patterns of their debt-free peers, those who choose to focus first on student debt end up with $325,000 less at retirement. For $50,000 in student debt, the amount missed is closer to $530,000.
LIMRA explains that, in 1990, the average student loan debt was around $10,000, but by 2015 the average student loan debt more than tripled, reaching $33,000.
“The general belief has always been an investment in education was worthwhile because it would result in a higher paying career,” LIMRA says. “However, the recession impacted Millennials’ at the start of their careers, with many ending up unemployed or underemployed for years after they graduated. In addition, nine in 10 will not have access to a defined benefit plan, and are likely to have to fully fund their retirement, far lower than their parents and grandparents.”
The good news is companies that administer 401(k) and other defined contribution (DC) plans report high participation rates by Millennials, LIMRA says. “The bad news is Institute research finds Millennials with student loan debt are saving at a lower rate,” researchers explain. “Millennials without student loans are 60% more likely to maximize their employer match compared with those who are paying education loans.”
LIMRA says the research underscores the importance for parents and students to examine the amount of student loan debt they are willing to take on, understanding the long-term implications of this debt throughout their lives. It also advocates for better linking the student debt and retirement savings conversations.