With Gen X nearing retirement, with its oldest member just four years away from Social Security retirement age, these Americans’ retirement plans are being driven by debt, especially as student loan payments stop. It can be confusing. We are nearing the end.
Generation X is classified as the generation born approximately between 1965 and 1980. So the oldest member he is 58 years old. She’s about a year away from being able to withdraw her retirement benefits without penalty, and he’s less than a decade from Medicare eligibility.
As of the first quarter of this year, Gen X held about a quarter of the $1.6 trillion in student loans nationwide, about $49,000 per borrower, according to credit bureau TransUnion. climb. And this fall, people will have to start paying those balances again. Interest accruals on loans will resume from September, with payments due in October for the first time since March 2020.
For people like Renita Thompson of Washington, D.C., deadlines are fast approaching, making it even harder to plan for the future. Ms. Thompson, 51, holds a bachelor’s degree in human resources management and owes $75,000 to $80,000 in combined federal and private student loans.
Thompson said she was able to use the three-year suspension of her student loan payments to pay off some of her other debt. She said completing a debt management program at the credit counseling agency Greenpath helped her pay off about $15,000 in credit card debt.
“If I get a degree, I think my salary will go up,” Thompson said. But she estimated it would be another three to four years before she paid off the rest of her student loans. “It’s going well, but not as fast as I thought it would be in my head,” she said. “As I am getting older, I should have thought about it earlier.”
It’s a common predicament, said Greenpath financial counselor Trent Graham. “Generally, we’ve seen customers focus less on student loans and more on savings,” he said. “They really didn’t have a plan to deal with student loans.”
Graham said many borrowers were surprised to learn how much student loan debt would increase because interest would continue to accrue even if borrowers postponed or deferred loans. (Loans in moratorium will still accrue interest, but deferring subsidized loans suspends interest accrual.) The pandemic suspension is an exception in this regard, with interest accrual and monthly Payment has been suspended.
“I don’t think they understand the impact of interest being charged on that debt over time,” Graham said. “We find it often.”
College costs are high, pensions are low
Generation X faces an alarming confluence of socioeconomic trends. At work, these employees were among the first to replace defined benefit pensions with defined contribution retirement plans like He 401(k).
“The biggest change this policy will bring is that the burden of retirement savings will fall on more people,” said Tyler Bond, director of research at the National Institute for Retirement Security, a nonprofit research and policy organization. ” says. “This is where the tipping point begins when considering the impact of student loan debt on retirement savings,” he says.
At the same time, Generation X was entering college at the same time that the cost of higher education broke its decades-long stable pattern.After adjusting for inflation, college tuition remained stable for much of his 1970s, and even checked down how many years, But in the early 1980s, when the oldest members of Gen X began graduating from high school, that spending began and continues to rise.
A study found evidence that student loan debt can negatively impact your retirement savings. In 2018, researchers at Boston University’s Center for Retirement Studies found that while student loans don’t prevent young people from signing up for 401(k) accounts, it does affect how much students donate to 401(k) accounts. was found to influence
Matt Rutledge, an associate professor of economics practice and a research fellow at the Center for Retirement Studies, said borrowers tended to save less regardless of how much they borrowed.
“It’s with every loan. People with loans probably think they can’t afford to think about retirement yet,” he says.
This has a huge impact on Generation X, where about 65 million Americans are reaching their prime earners. “People who have had these loans for decades probably didn’t save much to begin with, so they’re actually robbing them of some of their best savings.” says Rutledge.
covered in debt
There are other signs that many of Gen X are financially ill-prepared and on the brink of retirement. According to the Transamerican Center for Retirement Research, about 80 percent of Gen Xers save, but each only contributes 10 percent of their annual income, and 401(k) or similar retirement account balances are median. The value turned out to be $82,000. As a rule of thumb, many experts urge savers to save her 15 percent of her income, and some planners believe that the saver will pay her 15 percent of her salary as retirement by age 50. It is recommended to accumulate 6 times.
An annual survey conducted by Northwestern Mutual found that 55% of Gen Xers don’t feel financially prepared for retirement.
Christian Mitchell, chief customer officer at Northwestern Mutual, said these borrowers face an unattractive choice between working longer or spending less in retirement.
“Retirement is theoretical unless it becomes a reality,” he said. “What’s probably exacerbating the situation here is all the economic turmoil we’ve been through in the last few years.” When it collapses, it can create financial shortfalls that are difficult to recover from.
In reality, a certain number of these borrowers are likely to have to work longer and live more frugally. Especially because student loans, unlike other types of unsecured debt such as credit cards or medical debt, cannot be easily discharged in bankruptcy.
juggle the children’s expenses with one’s own
Overall, Gen X was already heavily indebted. According to online lending platform LendingTree, this age group also has the highest non-mortgage debt, with an average of more than $167,000 per borrower. Volatile as much of the monthly payment goes toward repaying the debt itself rather than repaying the principal as borrowers are now paying higher interest rates as part of the Federal Reserve’s fight against inflation It is becoming difficult to repay interest debt. .
“It means a bigger impact on the overall budget, making it more difficult to cover other expenses,” Graham said.
The burden of student loans threatens to exacerbate existing income and wealth inequalities in American society. This is because student loan borrowers are forced to choose between paying off their own education or saving for their children’s college expenses.
Terrell Grant, a health care worker who runs a home care agency in Sacramento, has two children, ages 12 and 10, despite working two jobs to pay off a rough debt. I put money in the 529 account as a university entrance fund. He borrowed $110,000 to complete his bachelor’s and master’s degrees.
Grant, 40, a first-generation college graduate, said he doesn’t regret his investment in education, but admitted he needs to recalibrate his retirement expectations.
“I would like to work until I’m 55, but looking at the situation, I’m likely to be around 65,” he said, adding that he was urging his children to consider debt-free education opportunities. “I try to educate them,” he said of the long-term effects of student loan debt. “If we can avoid taking them out, that’s ideal.”
“I hope it won’t be a big deal.”
Besides the financial burden, carrying on with student loan debt into adulthood can put a strain on the mental health of borrowers, experts say.
“Preparing for retirement is a big concern,” said David Simula, assistant vice president of wealth management group at SAFE Credit Union in Sacramento, where Grant is banked.
A survey by Northwestern Mutual found that only about half of Gen X survey respondents believe they have or will achieve financial security, compared to respondents of all ages. was found to be 5 points lower than Gen X respondents also expressed less confidence than respondents overall in their prospects for career success and their ability to plan for unexpected events and emergencies.
“High debt is a concern for Gen X,” said Mitchell of Northwestern Mutual. “As long as there are still people with student loan debt, I think this could be a trigger, a touchstone, for broader post-retirement anxiety.”
In addition to this general fear, student loan borrowers are feeling uncertain about the monthly bills they will face when payments resume.
“I hope it doesn’t get too out of hand,” said Thompson, a recruiter in Washington. She said she was financially and mentally prepared to pay $500 a month, but worried about how she would cope if the payments were higher. . “I hope it doesn’t get any more than that,” she said.
