How to balance student loan debt and retirement saving

For many young professionals it can be challenging to find a balance between paying down student loan debt and preparing for a financially secure future by saving for retirement. Over half of college graduates have student loan debt. In the US this amounts to a staggering $1.77 trillion in student loan debt, second only to home mortgages— and early career salaries may leave something to be desired. However, with professional guidance, strategic planning and proactive steps, it’s still possible to effectively save for retirement while managing student loan debt repayments and working toward other financial goals. 

The case for early retirement saving

It’s normal to feel like retirement is very far away, especially when you are beginning your career. The pressure to pay down student loan debt and the hope of buying a home can feel far more urgent than a retirement that may be decades away. However, there are several key reasons why starting early, even with very modest saving goals, can make a significant difference in your future security.

  • Compounding interest: The magic of starting early: One of the most compelling reasons to start saving for retirement early is the power of compounding interest. Compounding interest means you earn money on both the amount you’ve saved and on the interest itself. For example, if you save $1000 at 5% interest one year you will earn $1050 ($1000 + $50); a year later with compounding interest that balance would be $1102.50 ($1050 +52.50). Although this example is a smaller amount, you can see how over time, even small contributions made early on can snowball into substantial amounts due to the compounding effect. The longer your money is invested, the more it can grow.
  • Long-term growth potential and wealth accumulation: Early retirement savings offer the potential for long-term growth and wealth accumulation. By consistently contributing to retirement accounts, you can leverage the power of diversified investments, maximizing your chances of substantial returns.
  • Mitigating financial stress for a comfortable retirement: Prioritizing retirement savings early on can alleviate financial stress in the future, ensuring a comfortable retirement. It allows for a broader safety net, offering peace of mind as you progress through your career and life stages.

Strategies to begin saving for retirement early

Now that you understand why saving for retirement early is so important, we can move onto what, for most people, is the more challenging part: employing practical strategies to begin the process. Each person will have a unique starting point, based on your current job, income, career goals and trajectory, and existing savings or investments so there’s no one-size-fits-all path to retirement stability. There are, however, fundamental practices and approaches which you might also consider discussing with a financial professional to make sure you’re on the right track.

  • Establish a budget and set financial goals: First, create a comprehensive budget of all your expenses combined with an outline of your financial goals: paying down debt, saving for a down payment for a home, owning your own business etc. This will give you a full picture of your needs and wants along with an understanding of how your income will be allocated.
  • Take advantage of employer-sponsored retirement plans: If it’s an option for you, maximize opportunities provided by employer-sponsored retirement plans such as 401(k)s or similar programs. Set up maximum contributions and capitalize on employer matches to augment your savings.
  • Automate Contributions to Retirement Accounts: Set up automatic contributions to your retirement accounts to ensure consistent savings without the temptation to spend elsewhere.
  • Understand investment options and risk tolerance: Educate yourself on various investment options and assess your risk tolerance. Diversification and a well-thought-out investment strategy can optimize your returns. A financial professional is an important ally in making sure your portfolio is set up in the right way for different stages of life and can help you modify to support growth and mitigate risk. 

Managing student loan debt to prioritize retirement savings

It’s normal to want to pay down debt as quickly as possible, especially what can feel like an overwhelming held in student loans. According to the Education Data Initiative, the average student borrows over $30,000 for a bachelor’s degree, making the pressure to reduce this debt significant. It can be helpful to remember that your career will likely have multiple phases and your income now will likely increase over time. With that in mind, you may feel more comfortable knowing some of these strategies, which can help you make progress in paying down your student debt while also saving for retirement and other financial goals.

  • Evaluate student loan repayment options: Based on whether you have federal or private student loans, or a combination of both, there are multiple repayment options available. The Federal Student Aid office offers informational guides to understand your federal loan options, including income-driven repayment plans. For private loans, refinancing may be an option. 
  • Allocate extra funds strategically: If you’re income increases or you get a bonus or other windfall, balance these extra funds between debt payments and savings. If you have higher-interest loans, consider the impact of those interest rates and pay those down first.
  • Utilize employer benefits for loan repayment: Certain sectors and companies may offer employer benefits or incentives geared toward student loan repayment. Workers in the public sector may also be eligible for loan forgiveness after a certain term of service. 
  • Modify plans according to income changes or life circumstances: Adjust your repayment and savings strategies as your income grows or if unexpected life events occur. Flexibility is key to adapting to changing financial situations.

Balancing act: Finding the right mix

Your individual circumstance and priorities will inform how you decide to move forward with saving, investing, and paying down debt. The key is to make sure your efforts are aligned with these priorities which is where professional financial guidance can make all the difference. With your budget and goals in mind, the right financial professional can advise you on how to create a structured repayment plan that allows you to reduce your debt while ensuring steady allocation towards retirement savings. 

With a goal of finding a sense of stability and progress even while still new to your career, balance is everything. Being practical about your spending habits will allow you to stick to your budget, but you should also consider your quality of life and sense of security now. Building an emergency savings fund is one important step to establishing peace of mind and ensuring you can meet your daily needs in the event of unexpected changes or upheaval. 

A large part of this bigger picture balancing is to understand that your needs and strategies will likely change over time. By starting to think about retirement saving early, you benefit from a much longer timeline in which to invest, grow and adapt. While it can be challenging to begin, by creating a budget, understanding the roles of interest rates, and balancing your attention amongst debt repayment, saving, and investing you can be proactive in your journey toward financial security and stability. If you’re ready to get started this is a perfect time to connect with an experienced financial professional who can guide you through important planning and decision-making and help you make the best choices for your individual needs through every phase of life.

This informational and educational article does not offer or constitute, and should not be relied upon as tax, legal or financial advice. 

Equitable is the brand name of the retirement and protection subsidiaries of Equitable Holdings, Inc., including Equitable Financial Life Insurance Company (NY, NY), Equitable Financial Life Insurance Company of America, an AZ stock company with an administrative office in Charlotte, NC, and Equitable Distributors, LLC. Equitable Advisors is the brand name of Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI and TN). 

GE-6284055.1 (01/2024) (Exp. 01/2026)