Reshaping Longevity

Measuring Debt’s Drag On Income Accumulation

New considerations on Biden’s student loan relief plan

by Lyle Solomon

Mr. Solomon is affiliated with the Oak View Law Group, in California, as a Principal Attorney. Visit

Debt can make it harder for your clients to live off the income sources you’ve helped them plan. Debt payments cut into the money they get from Social Security, an IRA, or other investments that they really need to live their best lives.

When a student graduates with debt, they will feel the effects of that debt for years. Large amounts of debt can cause stress and worry, but they can also force people to make hard decisions and put off retirement savings.

The Biden administration has announced a new plan to forgive up to $20,000 in student loan debt for people who qualify, which could help boost retirement savings.

How Debt Can Affect Retirement Savings

  • Debt can reduce retirement savings

Many young adults are burdened with massive student loan debts and a slew of other debts. When you have large monthly payments to make, it can be difficult to make progress on other fronts, financial or otherwise.

Credit card debt is one of the most significant roadblocks to people saving for retirement. High balances deplete cash flow, forcing you to live paycheck to paycheck and making saving impossible.

  • It will cause your your nest egg to deplete too quickly

Carrying consumer debt into retirement reduces the monthly cash flow to spend on priorities such as health care, travel, and leisure activities. Or it necessitates drawing down retirement accounts faster than planned, increasing the risk of running out of money or forcing significant lifestyle changes to make ends meet. And it’s difficult to get ahead when debt interest rates outpace earnings on retirement investments. The historical average annual return on the stock market is a far cry from the average credit card rate.

  • You can become cash-poor after retirement

Debt repayment can deplete a person’s retirement savings. After paying off their mortgage, many Americans have very little saved for retirement, and they are debt-free.

But severely cash-strapped. Workers who are nearing the end of their working years and want to get out of debt may need to work longer, live on less, or make some sacrifices to pay off the debt before retirement.

Unless it is possible to safely and securely pay off debt during retirement. Near-retirees need to make sure that they have enough capital and income so that their money outlives them rather than the other way around.

  • Debt can make retirement stressful

Most families with student loan debt pay for the education of their children or grandchildren. So, older Americans pay their children’s student loans instead of saving for their own retirement. Also, because there is no limit on the size of Parent PLUS loans, they are often much bigger than student loans, which puts older people under more financial stress.

Low-income households are more likely to have trouble with debt and worry about their retirement because they have to spend a big chunk of their income paying off debt and can’t save for retirement.

Managing Your Debt In Retirement

Most people will have to deal with debt at least once in their lives. Whether or not it should be a part of retirement depends on what type of debt we are talking about.

Debt can be classified into two types: good debt and bad debt.

  • In general, good debt is for necessary, reasonable purchases that will make your life better, like a low-interest student loan, mortgage, or car loan that you can afford.
  • The second kind is debt, with high or changing interest rates, used to buy things that aren’t necessary or that lose their value quickly. Bad debt is often made up of credit card debt. You may think you have to pay off all debt before you can retire, but that isn’t always the case.

It all depends on the type of debt, the interest rates, and whether or not the payments can be made on a fixed retirement income. It’s difficult to manage bad debt when you don’t have a steady source of income, and it can derail your retirement plans. Medical care costs tend to rise after retirement, making it difficult to pay for them when your income appears to be declining. As a result, accumulating debt becomes difficult.

Young workers will have more money to save now that they don't have to use it to pay down their student loans. This could allow them to save more for retirement. Less money locked up in student loan payments equals more money to put into retirement accounts...

If you’re worried about not being able to retire on time or if you’re having trouble paying off your debts, working with a financial professional can help you make a plan for your future. A financial advisor can also help you understand your current financial situation and plan for the future using a variety of creative tools. For example, a professional may be able to assist you in getting payday loan debt relief if you are unable to repay a payday loan.

Emergency savings can be very helpful for just-in-case situations. If you are trying to save for an emergency fund, you should save at least six months of your salary. You can use this money to pay for your bills if you lose your job, get injured and can’t work, or have other unplanned but necessary costs.

This will keep you from having to take on more high-interest debt when you’re strapped for cash and also keep your retirement savings on track.

A debt consolidation program can assist you in combining all of your credit card payments into a single payment. Following that, you usually make a single payment to the program, which distributes the funds to your creditors.

This can be a good way to pay off high-interest credit card debt. The monthly payment for your program should be less than if you paid for everything separately. This also means that a larger portion of your payment will go toward paying off your other debts.

Debt consolidation programs work with your creditors to lower your interest rates and eliminate fees such as late fees, but neither is guaranteed.

Biden’s Student Loan Relief Could Help Boost Retirement Savings

Since most student loan debt can’t be erased by filing for bankruptcy, pre-retirees who owe balances often have to deal with some problems. They have to work past the normal age of retirement.

Their Social Security and other retirement income may not be enough to cover their living costs and the loan payment. They give up on saving for retirement, which either makes it harder for them to save for retirement or causes them to spend their nest egg too soon.

They put off getting medical care and have trouble with their credit. Older people who have student loans can find it hard to get the new loans they need to fix up their homes, buy a car, or pay for other big expenses. They can’t help their families because their student loan debt keeps them from being able to give money to those in need.

Under Biden’s federal student loan forgiveness program, millions of people should soon be able to take steps to get rid of up to $20,000 in debt. In August, the Biden administration said that single people who make less than $125,000 could get $10,000 off their federal student loans. Married people who make less than $250,000 can get the same amount off their loans.

Most of the 43 million people who have taken out federal student loans and now owe more than $500 billion will need to fill out an application to see if they are eligible for forgiveness. The White House says that only about 8 million of these borrowers will have their debts automatically wiped out because the Department of Education already knows how much money they make.

The relief only helps a small number of Americans with student loan debt, and it doesn’t make the student debt issue go away. For a lot of people, it doesn’t make much of a difference in their balance.

Still, young workers will have more money to save now that they don’t have to use it to pay down their student loans. This could allow them to save more for retirement. Less money locked up in student loan payments equals more money to put into retirement accounts.

If your capacity to save for retirement has been hampered by student debt, you can now use the money you would have spent on student loans to contribute more towards retirement savings.

The Bottom Line

Getting out of debt might seem like a‌ ‌top‌ ‌priority. ‌ However, time is of the essence when saving for retirement due to the magic of compound interest, and it’s impossible to get back the time you’ve lost.

Every dollar you owe reduces your retirement income but blindly prioritizing debt reduction before retirement savings, particularly for low-interest debt, especially for low-interest debt, might leave you with an inadequate nest egg.

It is important to understand what type of debt you can take into retirement and what kind to pay off beforehand. Student loans have become a significant hurdle in the way of saving for retirement for many Americans, and Biden’s student loan forgiveness program can be the boost some people have needed for a long time.


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