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The Trick To Balancing Student Debt And Retirement Planning


crushing debt savingDebt and retirement planning are where your financial past and future meet. Many people stave off or take a break from starting or contributing to retirement savings funds because they are dealing with debt. This is especially an issue with graduates who have high student loan debts during the time in their life they should start a retirement fund. Student loans affect parents too; students have to deal with more debt than ever and parents are putting off retirement saving to help them pay their debts.

Focusing your financial efforts on repaying debt is a wise decision but if you have to make sacrifices, your retirement planning shouldn’t be one of them.

How can a graduating student, or someone with credit card debt or mortgages to pay, balance paying their dues and planning for their future?

A 401k is great (If you can get one).

If you are lucky enough to graduate into a job that offers a 401k you are already ahead of the curve. These savings accounts can manually or automatically choose a portion of your paycheck to contribute to a retirement fund. Some employers will contribute extra money or even match what you put in. This kind of fund can help you get your planning started while you continue to pay your debts.

401ks are common practice for some companies but graduating directly into a job is rare these days, let alone one that offers retirement benefits.

The IRA Option.

If you are like most graduates you won’t have access to a 401k, at least not yet. What you do have is the option to make your own retirement plan by investing in an individual retirement account. This is a retirement account, which often comes with some added tax benefits, signing bonuses and the ability to roll over into a 401k.

“IRAs are a great savings option, especially for young college graduates,” says Rob Webber, CEO of Money Saving Pro, a consumer advocate site that looked at top IRA providers like Scottrade and Vanguard and published a review detailing how they compare in terms of investment options and brokerage fees. “If you start saving young, even small amounts can grow to sizable retirement funds with compound interest.”

There are a variety of IRA providers that offer plans with varying parameters. Some have no account minimums, which mean you can start an account with as little or as much money as possible. However, be sure to watch out for fees. Some accounts charge you annually, for every transaction or for moving into a 401k.

Moderate and Plan.

The key to balancing retirement and paying off debts is really the key to balancing anything. By moderating your payments and making a sound financial plan you can simultaneously take care of your past while planning for your future. Create a budget that takes into account all of your expenses and your income. If you have to, reduce or eliminate expenses that are non-essential. With whatever is left, take a portion of it and put it into a retirement fund. There will always be financial obligations and if you wait till you are free of expenses to start saving for retirement then you may never end up saving.