As this website has already discussed at length, student loan borrowers often have a number of financial responsibilities and limited resources to satisfy these obligations. Indeed, student debt borrowers need to devote substantial funds to student loans each month, and also need to pay for living expenses, housing costs, and other expenses. In addition, as we all know, people should save money for retirement so that they will be able to enjoy a comfortable life in their “golden years.” However, individuals should prioritize student loans over retirement savings for a number of reasons.
This website has previously discussed the topic of how to save for retirement while paying off student loans. That prior article detailed the financial and mathematical reasons why individuals should prioritize student loans over retirement savings for much of the time they pay off student loans. Of course, student loans often have high interest rates, and retirement investments may not be expected to have a return higher than this amount for a while. Once the effective interest rate on your student debt is lowered as you pay off the high-interest loans, it may make sense to stock money away for retirement instead of pay off student loans early.
However, since writing that article, I have come to realize that there are a number of other reasons why you should prioritize student loans over retirement savings. One of the main reasons why this should be done is because student debt is a present issue whereas retirement is an eventuality that is decades in the future. For many people (myself included) student debt is a constant source of stress and anxiety. Paying off student loans would eliminate this issue in the present, and for the rest of your life you will no longer need to contend with the hassle of student loans.
In addition, people often have a long time to save for retirement, whereas student loans need to be paid off sooner than most people expect to retire. Of course, we all know the benefits of compounding interest, and it is best to save for retirement earlier in order to reap these advantages. However, most calculations of compounding interest do not consider that people have various financial responsibilities, and after paying off student loans, individuals should still have decades to save money for retirement.
Probably one of the biggest reasons why people should prioritize student loans over retirement savings, is because nothing is guaranteed in life and that you need to make it to retirement in order to use the money that you stocked away for this eventuality. Of course, it is likely that people will make it to retirement, and individuals need to be prepared. However, student loans are a hassle in the present that could conceivably be dealt with in several years of concerted effort.
This issue of making it to retirement is definitely more on my mind than most other people. Neither of my parents made it to retirement. Both my mother and my father passed away long before they ever considered retiring. My folks did not save any money for retirement, since they both had financial struggles that forced them to contend with immediate financial issues rather than long-term financial goals. In any case, people need to consider the possibility that they might not make it to retirement, and this possibility should factor into the decision to prioritize student loans over retirement savings.
Furthermore, saving for retirement kind of assumes that you want to stop working and live off your savings during your later years. In the past, it was common for people to work a number of years and then retire because they were too old to continue working or because they wanted to stop working in order to pursue other activities. However, people are living longer and healthier lives than at any other time in the past. As a result, some people refuse to retire, and other individual try to work as long as possible.
From my own perspective, I hope that I never have to retire. I genuinely enjoy practicing law, and nothing about my job requires much physical exertion. Of course, attorneys need to be able to cognitively handle the practice of law, but being older can have a number of benefits to a legal career. Indeed, older attorneys can usually draw upon experiences that they learned in the past, and information they picked up during a long career in law.
Sometimes attorneys begin to lose their “juice” because client contacts retire and their sharpness may begin to fade over time. However, so long as I am capable of practicing law, I plan on being a lawyer. As a result, I hope to never use retirement funds and continue to earn money as a senior. As such, it was best for me to prioritize student loans over retirement savings, because student loans are definitely an issue in the present, but retirement for me will hopefully never happen.
Of course, I still have a respectable amount of money stocked away for retirement, and people should save for their “golden years.” No one knows what their circumstances will be, and people should prepare so that they can be secure in their final years. However, it may be important to prioritize student loans over retirement savings in a number of situations.