22 Sep

Student Loans vs. Retirement Savings: Deciding Which to Tackle First

Is there anything more exciting right now than graduating and landing that first post-college job?

Of course, mixed in with that euphoria is the knowledge that pretty soon, you’re going to have to start repaying those student loans. And you’ll need to start thinking about the future — aka, retirement.

The average student loan debt is more than $25,000 for 20-somethings — not exactly small change when you’re just starting out. But, as some experts point out, it’s a debt that can be paid off within 10 years if the first job you land has an annual salary more than your debt load. Of course, $25,000 is just an average, and new graduates may leave the academic world $50,000 or more in the hole. So this begs the question: What should I do first, start chipping away at my loan debt or saving for retirement?

Find what’s best for you

There’s really no one right answer, although experts do give saving for retirement the edge in most cases. To come up with the plan best suited to you, consider your unique circumstances:

Do you have low-interest-rate loans? Consider making the minimum payments on your student loans and put your excess cash into retirement. Money you put away in your 20s is usually worth more than what you invest in your 30s, simply because it has more time to grow. If your student loan interest rate is less than the return rate you can expect to earn on your retirement investments, this choice can make sense. The earnings on retirement savings may be more valuable than the interest you save by paying off your student loans faster. Other benefits of putting more into retirement savings include potential employer-matching contributions and tax breaks. For most people, saving for retirement will only get harder as you assume additional financial obligations, such as a home mortgage or child-rearing expenses, as you get older.

Do you have high-interest-rate loans? Think about saving for retirement later and aggressively tackle those student loans now. This may be the option for you if you have private or older federal loans with higher interest rates. That’s because your student loan interest could outpace your retirement investment earnings.

Do you have interest rates that aren’t too high, but aren’t too low either? Consider tackling both student loans and retirement. Divide up funds equally and apply to both.

Still on the fence? The best choice for your situation may not be clear to you. If that’s the case, consider sitting down with an investment professional with NCU wealth Management to help sort out your options.

16 Apr

College Degrees Still Make the Grade

With the rising costs of attending college, much debate has occurred in recent years about the value of a college education. Yet, a recent examination by the Federal Reserve Bank of New York found that over the past decade, the rate of return on a college degree has remained fairly consistent at around 15 percent.* This rate of return is the difference between wages for individuals who have a college degree versus those with only a high school diploma after accounting for the cost of college. This return rate remained steady for both bachelor’s and associate degrees. The report found that despite changes in the economy, a college education continues to be a valuable asset in creating higher lifelong earnings. So how do you ensure your child is able to afford college once he or she is ready?

College Saving Strategies

While the advantage of a college degree is clear, the price of college continues to increase year-after-year, creating a challenge for many families. But, there are a number of ways, both traditional and creative, that you can use to help your child be financially prepared for college:

Open a college savings account for your child. Navigator Credit Union offers a variety of savings vehicles including Coverdell Education Savings Accounts (ESAs) and 529 College Savings Plans. Both of these savings accounts are a great way to invest long-term in your child’s education. These tax-advantaged accounts allow anyone to contribute including parents, grandparents, other relatives or family friends. Which brings us
to our next tip:

Suggest relatives contribute. Many people, including grandparents and other relatives, want to see your child succeed. Consider asking them to contribute to your child’s savings in lieu of extravagant gifts during the holidays or for birthdays. While of course your child will enjoy some presents, think about giving smaller gifts and putting the difference into saving for their future.

Continue “paying” expenses you’re used to. As your child grows, there will be a number of expenses that arise and eventually are no longer needed — such as money for diapers, baby-sitting or braces. Instead of forgetting about these costs once your child outgrows them, start putting that money toward your child’s college savings.

Here For You and Your Child’s Future

Getting started on saving for your child’s educational future doesn’t have to be confusing or difficult. The investment professionals at Navigator Credit Union can help you decide the right strategy for your family. Contact us today by calling (228) 474-3427 or visiting us online at https://navigatorcu.org to help your child prepare for the rewards of a college degree.

* Source: Federal Reserve Bank of New York. www.newyorkfed.org.
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