I Asked ChatGPT: How I Can Save for Retirement When Dealing With Student Loans?
Balancing student loans and saving for retirement is challenging for many Americans trying to make headway on both. Most Americans know they need to plan for retirement, but student loans continue to stymie their progress.
A reported 20% of people aged 25 to 69 participating in 401(k) plans have student loans, per the Employee Benefit Research Institute (EBRI). You can attack both, but it requires a balanced, holistic approach.
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MoneyLion asked ChatGPT how to save for retirement when dealing with student loans — here’s what the artificial intelligence (AI) said.
Capture the Employer Match If You Can
A 401(k) match is generally the best tool to boost retirement savings, especially for younger Americans or people who have a hard time finding money to put away. Many Americans take advantage of a 401(k) match, though not all do. Per Fidelity, 20% of Americans aren’t contributing enough to get a match.
If you can only afford to save a little, try to meet the match. “Someone who can only afford to contribute 2% or 3% should generally prioritize getting as much of an available 401(k) match as possible,” ChatGPT said.
Most experts recommend saving at least 15% of your income for retirement. Don't let that amount overwhelm you to inaction. "They (savers) don't need to reach an ideal retirement savings rate immediately for the contribution to be worthwhile,” the AI chatbot added.
Don’t Be Aggressive To Prepay Low-Interest Loans
Acting quickly to eliminate student loan debt is understandable. Debt can be burdensome and can delay achieving other goals. However, if you have a lower-interest-rate loan, aggressive repayment may not be worthwhile. For instance, private student loans can have rates under 5%, per CBS News.
If you’re sending extra money towards a low-rate loan, you may want to consider shifting some towards retirement savings. “Someone sending an extra $100 or $200 each month toward relatively inexpensive student debt may want to consider whether at least part of that money should instead go toward retirement,” ChatGPT explained. If you’re not getting the employer match, it’s even more important to consider shifting some of your resources.
Use Found Money To Put Towards Retirement Savings
More Americans are struggling to balance student loans and retirement savings. A reported 20% of federal student loan borrowers are facing default, according to PBS.
AI offered a simple strategy to use found cash for retirement planning purposes. “Tax refunds, bonuses, overtime pay or occasional freelance income can provide a way to fund an IRA or increase workplace contributions when regular cash flow is tight,” ChatGPT said.
The advice sounds good, on the surface. There’s one oversight, though. People in default may face harsh consequences, like fees and harming credit, if they don’t become current. Using found money may work in the long run, but if default is imminent, it may be more beneficial to use the cash to get current on loans.
Take Advantage of Automatic Increases
It’s not uncommon for 401(k) plans to offer annual automatic increases. They may even allow increases after you receive a raise. Regardless, increasing your contribution by a small amount dulls the pain while still growing your savings.
“This can be particularly effective for borrowers because their retirement savings gradually increase without requiring a major budget decision all at once,” ChatGPT added. Saving more for retirement can seem burdensome when juggling student loan debt. Taking advantage of small automatic increases can substantially grow your percentage over time with minimal effort.
Saving for retirement and repaying student loans is a challenge for a growing number of Americans. Getting the full 401(k) match is a wise first step and if you can combine it with other small actions, you can attack both at once.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice. It was created with the assistance of artificial intelligence and reviewed by our editorial team for accuracy. However, AI-generated content may be inaccurate, incomplete or outdated. You should independently verify important information through reliable sources before making any decisions based on this content.
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