Retirement VS. College Debt
Debt repayment is essential, thereâs no denying thatâŠbut funding retirement should be a higher priority on your younger clientâs financial goals list than loan repayment.
There are plenty of ways financial advisors can assist clients and help ease the burden so that they can achieve other financial goals. Here are some strategies:
Get started on an automatic retirement savings plan
âAuto-pilotâ savings plans automatically deduct money into your clientâs 401(k). Often, clients can do this on their own even if their employer doesnât offer an option through a mutual fund firm. This doesnât involve clients making a decisionâa prime product for reluctant savers.
Advisors, at the very least, should help clients find a target-date retirement fund within their retirement program that can help select mutual funds for them.
Educate Clients on Compound Interest
If your clients are over 25, have more than $10,000 in their retirement savings, and can manage to put away 8% of their salary every year and get a 2% raiseâhereâs a plan:
By age 67âassuming that the client receives a 7% annual returnâtheyâd have $1.2 million saved for retirement.
But if they knocked down that annual contribution to 4% to pay off loans? Theyâd have just over $700,000 at the same age, leaving about a half a million dollars behind.
Finding Balance
This is simple. Advise your clients to fund as much retirement savings as they can while simultaneously paying down their loan principal. If they have federal student loans, they can consolidateâoften lowering finance charges and getting a payment thatâs affordable. The idea is to pay as much towards the principal that clients can afford without sacrificing retirement.