The Retirement Risk Index

How CanDoes Student Debt Impact Retirement?

Issue becomes a focus for millions of households

February 04, 2016 –WASHINGTON–(BUSINESS WIRE)–Prudential Financial, Inc. (NYSE:PRU) and The Center for Retirement Research at Boston College, at an eventWednesday at the Capitol, jointly unveiled the latest National Retirement Risk Index research, which highlights and examines the implications of student debt on Americans’ retirement readiness.

The event, The Impact of Student Debt on Financial Preparedness, was held at the U.S. Capitol in the Capitol Visitor’s Center. Panelists including James Mahaney, vice president of Strategic Initiatives at Prudential, highlighted that the median worker with a bachelor’s degree earned $57,252 in 2014, while the median worker with a high school diploma earned $34,736.*

“There is no doubt that a college education is valuable,” Mahaney said. “However, families need to borrow wisely when financing a college education, as increased borrowing can impact the future retirement security of students as well as parents.”

Working-Age Households At Risk

The Center for Retirement Research at Boston College yesterday issued a new Issue in Brief: “Will the Explosion of Student Debt Widen the Retirement Security Gap?” The analysis utilizes the National Retirement Risk Index (NRRI), which measures the percentage of working-age households “at risk” of being unable to maintain their pre-retirement standard of living during retirement.

“Our new study addressed whether student debt could have a big impact on retirement preparedness, and the answer was a definitive ‘yes!’” Alicia Munnell, director of the Center for Retirement Research at Boston College and a panelist at the event, said.

According to the brief, if NRRI households had started out with today’s student debt levels, the Index would be 56.2 percent instead of the already alarming 51.6 percent.

“Attending a good college is a dream of students and their parents alike. However, households are often faced with the issue of paying down student loan debt versus saving for retirement,” Mahaney, who authored the companion paper, said. “As this research shows, student loan repayments may impact a household’s future retirement security if the ability to contribute to a 401(k) is affected. If at all possible, the presence of student loan debt should not preclude saving for retirement, at least at a contribution rate that allows an individual to receive the full employer matching contribution.”

There is no doubt that a college education is valuable... however families need to borrow wisely when financing a college education

Prudential’s companion paper offers considerations for individuals/families, employers and financial advisors dealing with this topic.

For Individuals and Families

Prior to selecting a college, carefully consider how to approach financing an undergraduate degree, including becoming familiar with how specific schools provide financial aid. Prudential’s publication, Paying for College: A Practical Guide for Families, provides some guidance.

If loans must be taken to finance a degree, consider how those loans will be paid back, given career earning potential and available federal loan repayment and forgiveness programs.

Whether a parent or young graduate, give careful consideration before contributing to a 401(k) plan at a rate less than the contribution percentage an employer is willing to match; the match is “free money” that, once foregone, can never be recaptured.

For Employers

Recognize that student loan debt is top of mind with young employees, especially new hires.
Consider ways to help employees pay off student loans as well as save for retirement.

Help parents save for college by providing payroll deduction savings vehicles and planning tools.

For Financial Advisors

Assist individual clients in setting aside enough assets so as to minimize student loan debt once college is at hand.

Help clients understand the different ways that various schools approach financial aid, especially merit aid and grant awards, which can lessen the amount of debt a family will take on.

Ensure that clients are saving adequately for retirement based on their circumstances; at a minimum, contributions should be set at a rate that takes full advantage of an employer’s 401(k) matching contribution.

Prudential is the exclusive sponsor of the National Retirement Risk Index.

*U.S. Bureau of Labor Statistics




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