As Gen Xers approach retirement, with their oldest members just four years away from the age at which they can start receiving their benefits, these Americans’ retirement plans could be jeopardized by debt, particularly with the end of the moratorium on retirement. student loan payments.
Generation X is made up of individuals born approximately between 1965 and 1980, which means that the oldest members are 58 years old – in a year or two they will be entitled to withdraw their retirement funds without penalty, and in less than a decade, will be eligible for Medicare.
In the first quarter of this year, Gen Xers held about a quarter of the nation’s $1.6 trillion in student loan debt, about $49,000 per borrower, according to TransUnion, the national reporting agency. credit. And this fall, people will need to resume paying those balances. Starting in September, loans will again accrue interest, and payments will be due in October, for the first time since March 2020.
For people like Renita Thompson, 51, of Washington, DC, the rapidly approaching deadline makes planning more challenging. She studies human resource management and owes between $75,000 and $80,000 on a combination of federal and private student loans.
Thompson said she was able to use the three-year break in her student loan payments to pay off other debt, and that completing a debt management program with a credit counseling organization, GreenPath, allowed her to pay off about $15. thousand in credit card debt.
She believes that, when she graduates, she will have a salary increase. But she estimates she still has another three or four years to go before she pays off the rest of her student loans. “It’s going, but not as fast as I thought. As I’m getting older, I wish I’d thought of it sooner.”
According to Trent Graham, a financial advisor at GreenPath, this is a common situation: “Overall, we’ve seen customers focus more on savings than student loans, and end up not planning to deal with them.”
Generation X faces a discouraging confluence of socioeconomic trends. In the workplace, these employees were the first for whom defined contribution pension plans, such as 401(k), began to replace defined benefit pensions.
“The biggest consequence of this is putting pressure on them to save for retirement. It’s the impact of student loan debt on that savings that creates this intersection,” explained Tyler Bond, director of research at the National Institute of Retirement Security, a research and development organization. non-profit policy.
At the same time, when Generation X was enrolling in college, the cost of higher education was breaking a decades-long pattern of stability. Data from the Department of Education’s National Center for Education Statistics show that, adjusted for inflation, college tuition remained stable through most of the 1970s, and even declined in some years.
However, in the early 1980s, right around the time the older members of Generation X were starting to graduate from high school, these expenses began to rise and have not stopped.
Studies show that student loan debt can hurt retirement savings. In 2018, researchers at Boston College’s Pension Research Center found that while it didn’t stop young adults from qualifying for the 401(k) retirement plan, student debt did affect their contributions.
An annual study by Northwestern Mutual found that 55 percent of Gen Xers did not believe they would be financially prepared for retirement.
Christian Mitchell, director of clients at Northwestern Mutual, said these borrowers face unattractive choices: work longer or live on less in retirement. For a generation that is at the height of its earnings, the disruption of this dynamic, with the loss of millions of jobs during the pandemic, can create a financial deficit from which it can be difficult to recover.
The reality is that a certain number of these borrowers are likely to have to work longer and live more frugally, especially since student loans, unlike other types of unsecured debt such as credit card and medical debt, cannot be easily canceled by through a declaration of bankruptcy.
adding the children
In general, Gen Xers were already saddled with debt: Online lending platform LendingTree found that this age group holds the most mortgage and non-mortgage debt, averaging more than $167,000 per borrower.
The higher interest rates that borrowers are currently paying, as a result of the Federal Reserve’s fight against inflation, make it difficult to pay off debt with variable rates, since a larger portion of each monthly payment is debt costs itself rather than paying the principal. “That has a bigger impact on the overall budget, which means more difficulty covering other expenses,” Graham said.
The burden of student debt threatens to exacerbate the inequality of income and wealth that exists in American society, as these borrowers must choose between paying the cost of their own education and saving to cover their children’s college expenses.
Terrell Grant, 40, a health care professional who runs a home care agency in Sacramento, Calif., is making deposits into a 529 account to help fund college for his two sons, ages 12 and 10, although he has two jobs to pay off the roughly $110,000 he borrowed for a bachelor’s and master’s degree.
The first generation of his family to graduate, he said he doesn’t regret investing in his education, but acknowledged that he had to recalibrate his expectations for retirement: “I hope to work until I’m 55, but the way things are , most likely I’ll go to 65.” He added that he is encouraging his children to consider educational opportunities that don’t require loans: “I try to show them that ideally they should be able to avoid them.”
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