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Student Loans Hinder Participants From Saving More for Retirement

Workers with student loans are participating in employer-sponsored retirement plans at a lower rate than those without outstanding student loan debt, a survey finds.

By Javier Simon editors@plansponsor.com | October 18, 2016
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Student loan debt is affecting workers’ potential to retire comfortably, according to a survey from Aon Hewitt.

Workers with student loans are participating in employer-sponsored retirement plans at a lower rate than those without outstanding student loan debt (71% compared to 77%). In addition, the study found that slightly more than half (51%) of workers with outstanding student loan debt are contributing no more than 5% of their income toward retirement plans.

According to Aon Hewitt, saving less than 6% of pay can significantly impact retirement readiness, especially because most workers miss out on full company matching contributions. For example, a worker saving just 4% of pay will have accumulated a 401(k) plan balance of $351,407 at age 65, while someone saving 6% will have a balance of $527,110 at age 65—a difference of $175,703.

"It is heartening to see that participation in employer retirement plans is as high as it is for workers with loans," says Rob Austin, director of Retirement Research at Aon Hewitt. "These workers see the value in saving for retirement, but their loans are creating a speed bump. They don't need to shoulder this financial burden on their own. More employers are offering resources to help with overall financial well-being, budgeting and managing student loan debt. A few are even going so far as helping workers’ pay off their loans."

NEXT: Student Loans Affecting Financial Well-Being

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