Navigating Benefits

Student Loan Versus Retirement Savings: Which Should Be Your Priority?

  • Many companies offer matching funds for 401(k)s or other retirement plans
  • Plan participation can be 35 percent higher with automatic enrollment
  • Consider providing access to a financial planner as part of your benefits package

Posted by October 22, 2019

Student loan versus retirement savings is a challenge that many millennials face. Sure, you have a job now with real income, but retirement is far away and student loans are sitting and staring at you like some sort of monster. When your staff comes to you for advice, here is what you should say.

Never Give Up Free Money

Many companies offer matching funds for 401(k)s or other retirement plans. In this situation, you contribute a small amount of your paycheck to your 401(k) and your company puts an equal amount in. When you’ve vested in the account (usually five years), that company’s contribution is yours to keep forever. That’s free money. Contribute enough towards your retirement to take advantage of this free money.

Manage Your Student Loans

Dan Macklin, Co-founder and VP, Community & Member Success, of SoFi , a company which specializes in finding you the best deal for your debt, has a great suggestion: “See if you qualify to refinance your student loans and put the amount you’ve saved directly into your retirement rather than treating it as extra spending money.”

Opt-Out, Not Opt-In

When you bring new employees onboard, you sit them down with big packets of information to fill out. Often, that includes retirement savings plans. Make participation the default. The National Bureau of Economic Research found that “the plan participation rate was 35 percentage points higher after three months on the job under automatic enrollment, and remained 25 points higher after two years.” That’s a huge difference. One key point is that if employees participate in retirement programs from their first paycheck, they don’t miss the money. If they join later on, it’s like taking a pay cut.

Consider a Financial Planner

Managing student loan versus retirement savings can be difficult for an experienced professional. For a millennial staring down a mountain of debt on one side and a new career on the other, it can be overwhelming. Consider providing access to a financial planner as part of your benefits package. Each person’s situation is different and having that one-to-one contact can help your employees get on a wise financial path.

Overall, it’s each employee’s decision how they want to approach debt and savings, but putting them on the right path means they’ll be set for the future. Help them get started by following these suggestions.

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