Can early retirees with student debt still retire?

0


to play

Question: Boone County TD: I’m almost embarrassed to admit it, but I’m 54 and still have student debt of around $ 50,000. Will I still be able to retire? I saved $ 200,000, but the debt worries me.

A: We now live in a time when the burden of student debt is no longer just a problem of “young”. According to Bloomberg, borrowers like you (over the age of 50) are now the fastest growing cohort in student debt, with an estimated 8.7 million people still in arrears.

In some cases, they have taken out loans on behalf of a child or grandchild; in others, they have returned to school themselves. But whatever the reason, it is becoming more and more a financial constraint: the indebtedness of this group has increased by 50% in just four years; people aged 50 to 61 have about $ 43,000 in debt on average, while those 62 and over have about $ 39,000. And this is one of those cases where the accumulation of interest works against you; many borrowers now owe more than they originally incurred.

As to whether you can retire, the best way to find out is to start planning – now. You need to figure out how much income you will receive during retirement (through Social Security, outward investments, a pension, etc.), and then figure out your expenses – which, of course, should include payments on that debt. . If the numbers don’t work, you may need to delay retirement or change your budget. And just to let you know that if you’re retired and default on federal loans, part of your Social Security benefit could be foreclosed.

It is also essential to understand the type of loans that you have. Because federal student loans have what’s called a death and disability waiver – you don’t have to worry about passing any unpaid debt on to your family or heirs. Private student loans, on the other hand, can potentially be passed on.

Here’s Allworth’s advice: start calculating the numbers now so you have time to make any necessary adjustments. If you need advice, a financial fiduciary advisor can help you with a retirement cash flow assessment. And most importantly, stay up to date on your payments. You can also consider considering income-based repayment plans (assuming you have federal loans).

Q: Tony from Mount Healthy: My son is 23 and just landed his first job offering a 401 (k). Besides getting the full match, do you have any other advice for him?

A: He’s young and probably in a low tax bracket, so if the company offers a Roth 401 (k), he should consider using it for the majority (if not all) of his contributions. While there is no initial tax relief, the account will grow tax-free and it will eventually be able to make tax-free withdrawals in retirement.

It should also review the plan’s “procurement schedule”. Clearly, this is the time he will need to stay with his employer, so 100% of the company’s matching contributions belong to him. There are different types of acquisition, ranging from “immediate” to “progressive” (20% after one year, 40 after two years, etc.), to “cliff” (such as 100% after three years). This is important to know because young people tend to change jobs often – if he starts looking for a new job in two and a half years, but is fully acquired after, say, three years, he may want to -be delaying your job search a bit. a little longer.

Allworth’s advice is that he should familiarize himself with his 401 (k) plan. And, most importantly, save beyond the amount needed to get the full match. His ultimate goal should ultimately be to save 20% of his income.

Each week, Amy Wagner and Steve Sprovach from Allworth Financial answer your questions. If you or a friend or family member is having a money problem, please send these questions to [email protected].

Responses are provided for informational purposes only, and individuals should consider whether a general recommendation in these responses is appropriate for their particular situation based on investment objectives, financial situation, and needs. To the extent that a reader has questions regarding the applicability of any specific matter discussed above to their individual circumstances, they are encouraged to consult with the professional adviser of their choice, including a tax advisor and / or a lawyer. . Retirement planning services offered by Allworth Financial, an SEC-registered investment advisor. Securities offered by AW Securities, a registered broker / dealer, FINRA / SIPC member. Call 513-469-7500 or visit allworthfinancial.com.


Leave A Reply

Your email address will not be published.