Student loan debt is affecting workers’ potential to retire comfortably, according to a survey from Aon Hewitt.
Workers with student loans are participating in employer-sponsored retirement plans at a lower rate than those without outstanding student loan debt (71% compared to 77%). In addition, the study found that slightly more than half (51%) of workers with outstanding student loan debt are contributing no more than 5% of their income toward retirement plans.
According to Aon Hewitt, saving less than 6% of pay can significantly impact retirement readiness, especially because most workers miss out on full company matching contributions. For example, a worker saving just 4% of pay will have accumulated a 401(k) plan balance of $351,407 at age 65, while someone saving 6% will have a balance of $527,110 at age 65—a difference of $175,703.
“It is heartening to see that participation in employer retirement plans is as high as it is for workers with loans,” says Rob Austin, director of Retirement Research at Aon Hewitt. “These workers see the value in saving for retirement, but their loans are creating a speed bump. They don’t need to shoulder this financial burden on their own. More employers are offering resources to help with overall financial well-being, budgeting and managing student loan debt. A few are even going so far as helping workers’ pay off their loans.”
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Moreover, Aon Hewitt’s research suggests that student loan debt is more than just a financial burden, and it’s actually affecting people’s well-being. More than half of respondents (51%) reported that student loan debt is “ruining their quality of life.” Fifty-six percent say they worry about saving for the future, compared to 41% of respondents without student loan debt.
The study also found that 54% of employees spend time at work dealing with financial issues compared to 47% without student loans. Thirty-one percent are worried about paying their bills, while only 20% of workers without loans share this concern. Meanwhile, only 27% said they are "financially comfortable" compared to 43% for their loan-free colleagues.
"While it's not surprising that student loans can negatively impact workers' well-being, the degree to which the stress is felt should be incredibly concerning to employers because financial stress has been shown to lead to a loss in productivity," says Heather Tredup, partner and Retirement Best Practice leader at Aon Hewitt. "Implementing a financial well-being strategy that combines plan design, solutions, education and communication will help workers improve their financial literacy and build their confidence so they can better manage their money for today and save for the future."
The Aon Hewitt study indicated that student loan debt and the associated consequences are issues that span generations, with 44% of Millennials reporting having student loans along with 26% of Generation Xers and 13% of Baby Boomers.
The Aon Hewitt Financial Mindset Study surveyed more than 2,000 U.S. workers. The research found that 28% of respondents have an outstanding student loan, and about half are paying at least $3,000 per year to pay off their loans.