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By Dan Kadlec
October 18, 2016

Millennials are delaying just about everything, from buying their first car or home to getting married and having kids. Student debt is frequently cited as a reason for the delays—and new research suggests those loans may also lead young people to delay retirement three or four decades down the road.

Student debt stands at nearly $1.4 trillion. It afflicts all adult generations, including 44% of millennials, 26% of Gen X, and 13% of baby boomers, according to a survey from Aon Hewitt. Those with student loans are less likely to participate in a 401(k) plan and more likely to be saving too little, the survey found.

Among workers with student debt, 71% participate in a 401(k) plan and 51% contribute 5% of pay or less, Aon Hewitt found. Among workers without student debt, 77% participate in a 401(k) plan and just 40% contribute 5% or less.

With 401(k)s, the contribution rate is critical. Most large employers match some part of pay up to 6%. By contributing less than that, many workers leave matching funds on the table. They are also losing out on the long-term potential of compound growth.

According to Aon Hewitt, a typical 30-year-old worker with a dollar-for-dollar match and average annual returns of 6% would accumulate $351,407 by age 65 by contributing 4% of pay. But the same worker saving 6% would accumulate $527,110.

The survey turned up a variety of other costly distractions associated with student debt:

  • 51% of those with student loans say debt is ruining their quality of life, vs. 28% of those without these loans.
  • 54% of those with student loans spend time at work dealing with financial issues, vs. 47% without student loans.
  • 31% of those with student loans are worried about paying their bills, vs. 20% of workers without student loans.
  • 56% of those with student loans are worried about saving for the future, vs. 41% of those without the loans.
  • Only 27% of those with student loans say they are financially comfortable, vs. 43% for those with no loans.

Such findings are why student debt surfaced as an issue in the presidential campaign. Both candidates have characterized these loans as choking the economy; they want to make them more affordable and help those with student loans satisfy their obligations quicker. Student debt is also behind financial wellness and loan repayment programs becoming a staple in the benefits packages at large employers.

 

 

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