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November 25, 2015 at 07:31 AM
Millennials who begin their careers with $30,000 in student loan debt may find themselves with $325,000 less at retirement than their debt-free peers, according to new findings from LIMRA Secure Retirement Institute.
A new report from LIMRA Secure Retirement Institute looks at the effects education debt can have on retirement savings.
“A full consideration of retirement security has to account for debt,” according to the report, Calculated Choices: Examining Debt and Retirement Savings Decisions. “Having debt reduces the money available to save and limits funds available for retirement expenses. Looking at financial assets in isolation may understate the gravity of the retirement ‘crisis.’”
Researchers at the Secure Retirement Institute found that a 22-year old who begins his or her career with $30,000 of student loan debt could reach retirement with $325,000 less than a peer who is not burdened with an education loan. For $50,000 of debt, the amount is closer to $530,000 less in retirement savings.
“The general belief has always been an investment in education was worthwhile because it would result in a higher paying career,” LIMRA states. “However, the recession impacted millennials at the start of their careers, with many ending up unemployed or underemployed for years after they graduated.”
While companies that administer 401(k) and other defined contribution (DC) plans report high participation rates by millennials, LIMRA finds the debt-burdened millennials are saving at a lower rate.
According to LIMRA’s research, millennials without student loans are 60% more likely to maximize their employer match compared with those who are paying education loans.
Outside of mortgages and home equity loans, student loans comprise the highest median amount of debt.
According to LIMRA, more than 20% of the U.S. population have student loans. (In comparison, 43% of U.S. households have mortgage and home equity debt and 38% hold credit card balances.)
The under-35 age group has more than tripled its education debt since 1989. According to LIMRA’s report, the average education debt increased from $3,000 in 1989 to over $19,500 in 2013 for this age group.
