Roughly 43.5 million Americans are in the process of paying off their student loans. And for many of those people, the monthly payments are extremely burdensome.
The average monthly student loan payment is $337, according to a Motley Fool research study on student debt. And not shockingly, 15% of Americans with student loans are behind on their payments.
But even if you've managed to make your student loan payments on time, you don't want to let your retirement savings fall by the wayside. And while the idea of saving for your senior years and paying off student loans at the same time might seem laughable, rest assured it can be done.
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It's all about budgeting and setting priorities
Let's be clear -- socking money away in an IRA or 401(k) plan is not easy when you're on the hook for a monthly student loan payment. If you're sending your student loan servicer a check for $337 a month, that's apt to impede your ability to set money aside for your nest egg. But if you're willing to make some sacrifices, you may find that you can simultaneously pay down your student debt and save for retirement.
The first step, however, is to get on a budget -- an accurate one at that. Comb through your bank and credit card statements from the past six to 12 months to get a sense of what your monthly bills entail and cost (keeping in mind that some expenses might vary from one month to the next). From there, divide your bills into two categories -- essential and nonessential.
Your essential bills are the ones you probably can't change very much. Those might include your rent and car payments.
You may, however, have more wiggle room with your nonessential bills -- things like streaming services, travel, and dining out. If you're willing to cut back in those categories, you may find you can squeeze out some money for your nest egg.
As an example, let's imagine you bring home $3,000 a month and your essential bills, including your student loan payments, come to $2,400. It's not so unreasonable to spend $600 a month, or 20% of your income, on things like leisure and entertainment. But instead of spending $600 a month on nonessentials, if you cut back to $300 a month, you'd free up $300 a month for your retirement plan.
Even if you can find only $50 a month to set aside for retirement savings, it could go a long way. Investing $50 a month at an average annual 8% return, which is a bit below the stock market's average, will leave you with $323,000 after 45 years. And ideally, you'll be able to ramp up your retirement savings rate as your career progresses and your income increases.
Saving for retirement while paying off student loans isn't easy by any means. But don't assume it's impossible. You may have to stick to smaller IRA or 401(k) contributions for a number of years, but it's better to save something for your future than not to save any money at all.
