When you think about retirement, you probably think it is a long time away, but do you have an age at which you would like to retire? 55 or 60 sounds great, right? But what if you were told you would not retire until you were 75? Oh no!
Unfortunately, the truth of the matter is that college graduates may not be able to retire until they are 75 years old. This is a crippling statistic and it can be quite disappointing for many.
Wondering why the rise in age for retirement? This is because the typical student loan balance that college students are taking out is higher than it used to be, which also means that students are paying off their debt for a lot longer.
What’s the Problem?
We briefly mentioned above that the rising student loan debt is the reason for the higher retirement age. In fact, millennials have a much harder time saving money because they must worry about rent payments and paying back their federal student loans or private loans. The more you dish out each month, the less you can put away into a savings account.
To make things a bit clearer, the average amount of loan debt is $35,000 for students. If a student were to be putting those payments away, they could have saved over $700,000 by the time retirement rolls around, of course, that is with interest.
Now do you see why the age for retirement has gone up?
What Can You Do About It?
There are several things you can do about your retirement fund and paying back student loans. If you do not want to retire at 75, you will need to put some work into paying down your student loan debt faster and minimize the amount that you incur.
First, start investing young. While you may be afraid to put your money into an investment fund, it is important that you do so. If you work with a professional financial advisor, he or she can help you invest conservatively, risky, or somewhere in the middle. You will quickly see the number in your investment fund rising, which delivers peace of mind.
Secondly, you need to start making some small changes now to help you in the future. For example, decide how much money from your paycheck you can afford to set aside each payday. For example, setting aside even 10 or 15 percent will quickly add up, especially if you are in your twenties.
Lastly, pay down as much of your debt as you can quickly. For example, when you receive your tax return, consider taking at least half of that and paying toward your student loan. The more money you send in, the quicker you will dwindle down your payment.
One thing to keep in mind is that if you continue to make the minimum monthly payment each month, you will be stuck in the monthly payment cycle and your student loan balance will not go down as much as you would like. Every month, you should try to send in more than the monthly amount. Of course, if there is a month you cannot do this, do not panic.
You could also choose to refinance your student loans to a lower interest rate. Refinancing involves combining your student loans together with a new interest rate and repayment term.
A lower student loan interest rate will reduce your total interest expenses. Over the course of repayment even small interest rate savings add up.
The more money you send in for your monthly payments, the quicker your debt will be reduced allowing you to start saving toward your retirement fund again.
Don’t Ignore Your Debt
One of the worst things that you could do would be ignore your debt. If you start to ignore it, not only will you default on your loans, you will be paying them back for a lot longer than you intended.
If you find that you are ever having trouble making payments for your student loans, you want to make sure you contact your loan service provider as they can work with you to figure out a plan that fits into your budget.
If you do not want to retire at the age of 75, it is important that you work hard to pay down your student loans while setting a small amount of money aside each and every paycheck.