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Education Costs Put the Squeeze on Retirement Savings

Advisers say that parents should still consider their own needs, even when putting a child through college is a priority.

By Lee Barney | June 13, 2017
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Whether carrying student loan debt well into middle age or saving for a child’s college education, Americans are increasingly finding that funding education is a major drag on their retirement savings.

While young people may delay saving for retirement because of crushing student loans and parents may think it is more important to fund their child’s education, they should not lose sight of their own needs in retirement, advisers say.

“Student loan debt is the No. 1 baggage that people come in with when they start a career,” notes James Sullivan, vice president for Essex Financial in Essex, Connecticut. “A monthly payment of $600 or $800, more than a car payment, can be crippling.”

Indeed, a survey by IonTuition found that 70% of students are graduating from college with student loan debt averaging $37,172, and that people are carrying this debt well into their adult years; 44% of Millennials are carrying student loan debt, while the same is true for 26% of Gen X and 13% of Boomers. IonTuition discovered a direct link between student loan debt and retirement savings, finding that people with no student loans have a median retirement savings balance of $56,000, but that people with student loans have a median balance of $31,000.

The majority of people are paying back their student loans over decades, notes Mike Brown, managing director of the student loan and college savings advisory firm Nitro, based in Wilmington, Delaware. While only large companies are beginning to offer workers help managing or even paying for their student loans, Brown hopes that this benefit will resonate among more employers. “It is a tremendous way to attract talent,” he says.

The IonTuition survey found that only 4% of employers provide assistance with student loan repayment, but that 76% of Americans think it would be an excellent benefit, 36% would prefer student loan repayment benefits over a 401(k), and 29% would prefer these benefits over health benefits.

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