The ever-growing burden of student debt is a source of alarm for many Americans. The weight of these debts is born by people of all ages—not just millennials. According to the U.S. Department of Education, the total amount of debt carried by adults over age 35 is 200 billion dollars more than that of those under age 35. Financial advisors must be prepared to help clients of all ages tackle debt with their retirement savings in mind.
Diligent funding of an IRA or 401(k) account competes against other priorities, such as meeting the responsibilities of adulthood and paying off debt. The need to educate Americans to navigate financial decisions while prioritizing retirement planning is as critical as ever. This is why RetireReady exists. My aim is to provide financial advisors with the tools they need to alleviate poverty and help men and women build hope and confidence in their financial futures.
Here are a few tips to help you support clients who are struggling to balance student debt and retirement savings.
- Make it real. Everyone knows it is smart to save for retirement, but clients may think it is impossible given their circumstances. Advisors who use the TRAK Paycheck Calculator can show clients on a paystub exactly how much take-home pay they would have based on the proposed contribution levels.
- Communicate consequences. Set realistic goals, and then break down the cost of waiting to start working toward those goals. This helps clients grasp how important even small contributions can be in the long run. Use our Debt Analyzer or Interest Calculator to provide personalized scenarios.
- Illustrate solutions. The pressure to save can be discouraging when it seems there simply are not enough funds to go around. TRAK helps you illustrate solutions that foster hope and show that a comfortable retirement is indeed possible.
The Guardian Workplace Benefits Study reported several noteworthy findings in College Debt in America: With 74% of millennial college graduates shouldering debt, 36% are delaying the purchase of a home, 30% are delaying saving for retirement, and 16% are waiting to have children to offset their debt burden. Debt clearly has significant and lasting influence on major life events. Your work as an advisor can make a significant impact in the lives of those 30% who are putting their retirement at risk.
Teaching sound financial habits and providing clients (especially younger ones) with the big picture will go a long way toward helping them balance their goals. A clear conversation is the first step in developing awareness and positioning clients to manage their finances wisely.
As millennials incur debt, the ripple effect can often be felt by parents and grandparents. Using data from the past five years, the study found that the largest change in student loan debt came with a 72% increase in the 60-to-69 age bracket. To make a college education possible for loved ones, they overextend themselves, often to the detriment of their own retirement goals.
The study notes that “more than 50% of baby boomers say that college debt is negatively impacting their ability to meet financial goals.” Many advisors are already having conversations centered on various forms of debt and their consequences.
As concerns about student debt evolve, employers are considering college-related benefit packages. According to Erin Smith, Vice President at Total Reward Options Clearing Corp, “Student loan assistance is the top benefit being talked about at job and recruiting fairs.” Seven in ten employers say that improving their workers’ financial wellness is a top benefits objective—up 15% since 2014. This trend is likely to continue in the next several years.
Pending legislation reflects the growing need for viable options that allow businesses to offer benefit packages addressing student loans. For example, The Employer Participation in Repayment Act would allow employers to provide tax-free student-loan assistance for their employees. The Student Loan Repayment Assistance Act would allow employers to receive credit for providing student-loan payment assistance for their employees.
As financial advisors, you are at the forefront of workplace benefits and retirement planning, helping Americans navigate the changes occurring on a national level. Thank you for the important work you do! I wish you the best in today’s marketplace, and I hope you'll reach out if RetireReady Solutions can help you in anyway.