It Is The Size Of Account That Matters!

The Center of Retirement Research at Boston College has found that participation rates don’t vary for those participants who have or don’t have student loan debt. So what! Given auto-enrollment features found in many defined contribution plans the fact that participation rates differ little doesn’t surprise us at all! The only thing that should matter is whether or not a participant’s account balance (accumulated wealth) is impacted for those with student loans. In fact, it is, as the CRR found that graduates with student loan debt at age-30 have accumulated nearly 50% less in their retirement accounts ($9,300 versus $18,200).

The long-term implications of that fact are startling. Let’s assume that the participant with student loan debt can only put in 2/3rds ($2,000 versus $3,000) of the annual contribution relative to a participant that has no student loan debt.  If both groups of participants begin with the average account size at age 30 reported by the CRR and earn 5% from age 31 through to age 65, the difference in lifetime retirement earnings will be more than $141,000 favoring those without student loans.

Bottom-line: Student loan debt may not restrict participation in an employer-sponsored plan, but it certainly impacts retirement wealth creation, and that is the only thing that should matter.

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