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Is Your Student Debt Keeping You from Saving for Retirement?

Pay Student Loans or Save for RetirementMany people have student debt. According to Statistics Canada data from 2005, about 57% of graduating students had student loans. This is up from 49% in 1995. As it is now ten years later from 2005, the numbers are likely even higher today.
According to a CIBC poll, the more debt that people hold, the less they are able to save for retirement. The same Statistics Canada data mentioned above showed that people who have student debt are much less likely to have savings and investments than those who do not.

This makes sense. After all, if you’re spending a lot of money paying down your debt each month, you won’t have as much left over for retirement savings. This is true whether you have credit card debt, a large mortgage, student debt or any other type of debt.

This is unfortunate since retirement savings are very important. These days, many people do not have strong pensions at their workplace, meaning that a lot of people only have government pension plans to support themselves when they retire. In many cases, the money from a government pension plan is not enough. This means that the vast majority of people will need to save money themselves in order to afford to retire.

When you have a lot of debt (such as student debt) this is difficult to do. Student loan payments can be very high, depending on how much you borrowed and other details of your loan.

In addition, in order to maximize retirement savings, you need to start saving early. This is because contributions made in your 20s and 30s have more time to grow (due to interest) than contributions made later in life. Unfortunately for those who have student debt, the 20s and 30s are also the time where you spend a lot of your income repaying your student loans. This means that you’re likely putting less away for retirement during these years, which will likely mean that your overall retirement fund will be smaller when you retire.

This is a problem. Without adequate retirement savings, many people will need to keep working longer than they expected to. This situation also causes people to need to take out more debt later in life in order to afford expenses. Without sufficient retirement savings, it becomes very difficult to afford regular expenses when you are no longer working.

Saving for Retirement with Student Debt

However, it is possible to save for retirement even if you have student debt. That said, doing so requires a detailed plan and some dedication and perseverance.

You will need to review all of your expenses and create a budget. In order to fit both student loan payments and retirement savings into your budget, you will probably need to cut some expenses. Look at your current expenses and see where cuts can be made. It might be possible to reduce spending in some areas in order to have more money left over for retirement savings and student debt. It will likely be tough to live off of a smaller amount of money each month, but this decision will pay off in the long run.

Remember that it’s okay to start small with retirement savings. If you can only afford to put aside a small amount of money each month for retirement, that that’s better than nothing. Even a small amount of retirement savings can mean a great deal, especially when it’s invested early in life. Remember, the earlier you put money into a retirement savings account such as an RRSP, the more time this money has to grow.

While saving money and paying off student debt at the same time can be tough, it’s also important to try to put together an emergency fund. This fund will be incredibly valuable if you are hit with a sudden, unexpected expense. For example, if you are faced with a large home or car repair bill, you can turn to your emergency fund to pay for this expense. Without an emergency fund, you’ll need to go into debt in order to afford this bill.