Still Repaying Student Debt in Midlife? Ways to Rebuild Your Retirement Plan

Student loans do not only burden people in their 20s. For many borrowers, that debt can stretch on for decades and leave a lasting mark on retirement savings.

A study by EBRI found that workers in their 40s who still carry student debt have workplace retirement balances 45% lower than those without it. Among older workers, the gap remains significant, with 401(k) balances averaging 30% less.

The reason is straightforward: they tend to contribute less. For example, workers ages 50 to 54 with student loans contributed 14.7% less than their peers. Lower participation and contribution rates leave these borrowers with less time to benefit from the compounding growth that comes from starting early.

If you are still paying student loans after 40, how can you get your retirement savings back on track?

Take Full Advantage of an Employer Match

If your employer offers matching retirement contributions, make sure you use the benefit. In effect, it is an immediate 100% return on your money.

“That is free money you are leaving on the table if you don’t contribute,” said financial advisor Gerry Keene of LPL Financial.

Some borrowers may also be able to receive employer matching tied to their student loan payments. Under the SECURE 2.0 Act, the IRS allows employers to make retirement contributions based on workers’ student loan payments. Because this option is voluntary, however, not every employer provides it.

Before making any assumptions, check with your company’s HR department.

Treat Retirement as the First Bill

Retirement is not optional. At some point, you may no longer be able to work even if you want to, and you will need enough savings to support the rest of your life.

“Create a spending plan that includes a bucket earmarked for retirement,” said financial advisor Shavon Roman of Heal Plan Invest. Put it at the top of your budget instead of waiting to save whatever is left at the end of the month.

To free up money elsewhere, review the past year of spending for subscriptions you no longer use. Also take a fresh look at employee benefits to see whether you are underusing any of them or paying for optional services you do not need.

Strengthen Your Cushion

Most financial planners suggest having an emergency fund equal to three to six months of living expenses.

That may sound overwhelming, but it does not have to be built all at once. Add to it steadily from each paycheck. Start with $500, then $1,000, then one month of expenses, then two, and keep going.

Unexpected costs will come up; it is only a matter of when. A car repair, a major home repair or a medical bill for you or a family member can quickly throw finances off balance. Without an emergency fund, those expenses can disrupt everything.

Reevaluate How You Handle Student Debt

Do not assume student loans must be eliminated before you save for retirement.

“Consider making the required loan payments and concentrating on your retirement and other savings,” Keene said.

Over time, compounding can build meaningful wealth, but the biggest gains usually come from starting early.

Also remember that higher-interest debt should usually come first. If a credit card is charging 22% interest while your student loan is at 7%, the credit card balance should be your top priority.

Work on Closing the Gap

If your retirement savings feel behind, begin by meeting with a financial planner. Set a target retirement age and a savings goal so you have a clear benchmark.

Catching up may require saving and investing more in multiple places, including a workplace retirement plan, an IRA, an HSA or an after-tax brokerage account. After age 50, you may also qualify for catch-up contributions to retirement accounts, which can increase your tax-advantaged savings.

Depending on your goals and timeline, you may need to stay in the workforce longer. “If you delay retiring until age 67 or 70, that adds years of saving money and subtracts years of withdrawing it,” Keene said.

Even if student loans slowed your progress, it is still possible to recover. The key is to make up for lost time by saving and investing more aggressively now.