5 strategies to pay off student loan debt & save for retirement

Should you pay off student loans before saving for retirement? If you're struggling with this decision, you're in an interesting spot—but not an uncommon one.

More and more, people are finding themselves stuck between their student debt and their retirement goals, with an astounding 2.8 million people ages 60 and older still paying off student debt today.¹

And when the average American can expect to spend 21 years paying off their student loans,² saving for retirement can seem like a lofty aspiration.

We spoke with Kathleen Dufner and Greg Carlo, Thrivent financial planning consultants, who specialize in college planning, about striking that balance between student debt and retirement savings—and they have some key strategies for staying on track.

While retirement may feel like a lifetime away, you can use that lifetime to your advantage even if you start small. "You can't do a lot for your future if you have this huge weight on you, but there's nothing you can do if you don't have a plan for today," says Dufner.

Student loans can get complex quickly, especially if you have more than one. Before you try juggling student debt and saving for retirement, get organized. Start by gathering all the information you can about your loans.

"It's so important to arm yourself with information," says Carlo. "Know the type and number of student loans you have and how much you're paying on each of them. Know the terms and requirements, your payment plan options, and your eligibility for certain programs, including student loan forgiveness programs and tax advantages."

Learning about your student loan refinancing options can also help you achieve other life goals.

In addition to what you're paying, Dufner urges you to learn as much as you can about student loan interest rates. "A 10% loan and a 3% loan is a massive difference," she says. Higher interest rates will have you paying more over time, so it's smart to pay off your higher interest rate loans with more urgency.

For example, federal loans like a Direct Subsidized Loan are capped at fixed interest rates that hover around 5%³—meaning you pay that rate regardless of when it was given to you. In this case, you may find it makes more sense to allocate more money toward your retirement accounts while paying the minimum payments toward your fixed-rate loan.

In contrast, private loans tend to have slightly higher interest rates, so it may make more sense to focus your funds toward paying those loans off early and invest smaller amounts toward your retirement accounts until those are paid off.

Refinancing private student loans may be a way to increase the funds you have available to save each month. Working with our friends at Thrivent Credit Union to evaluate your situation, and what is possible for student loan refinance, may be worth the effort.

If you're having trouble finding the information you need on your own, Carlo suggests connecting with your student loan servicer. "They should be your go-to for student loan information," says Carlo. "Then, if you need additional help managing your debt, that's where a financial advisor can help out."

You can pay off your debt while saving for retirement—but first you need a strategy that prioritizes both goals in a balanced way. "There's a lot of people out there who recommend you focus on becoming 100% debt-free before you start saving for retirement, while others say save for retirement first," says Dufner.

"But in my experience with clients, creating a goal that requires you to pay something off 100% before you move on to the next stage isn't realistic. One setback could have you feeling defeated and could derail that whole plan," she adds.

When you have years of student debt and preparing for retirement ahead of you, Dufner suggests it's much more practical to find a way to balance both goals in your budget.

While there's no set rule or ratio for balancing debt and savings, the idea is to make consistent progress toward both goals while you can, even if it's small. "Putting $50 in an IRA, that's not a big dent in your budget, but it adds up in your favor over time, especially if you start in your 20s," says Carlo.

Here's what you can do:

You probably saw this coming. "A budget is the closest thing to a secret weapon that you're going to find," says Carlo. And according to Dufner, the secret to reaching your goals starts with keeping a budget for 30 days to make it a habit. "If you're overspending by even $100 a week right now, you're not making progress with any of your goals," Dufner says. If you can stick to your goal for a month, you'll have a better chance at committing to it for 20 years.

Once you find your budget rhythm, you can work toward doing incrementally better. "Say the benchmark for saving for retirement is putting away 15% of your salary. Try to push toward 18% so when life happens, you can feel more comfortable flexing down to zero so you can take care of these new responsibilities," says Dufner.

Even if you have ambitious goals for paying off debt quickly or retiring early, don't forget about those daily expenses—as well as those unforeseen emergencies. "You still need to eat, pay your mortgage and get to and from work, but you also need cash-on-hand if the unexpected happens," says Carlo.

The "set it and forget it" tactic is a powerful, undervalued tool—so use it! "Willpower is not a reliable source of motivation to push you through long-term goals," says Dufner. Instead, set up autopay for student loan and retirement savings payments to come out every month (or every paycheck), so they quickly become part of your normal expense routine.

Using the "set it and forget it" tactic can also be powerful for savings. First of all, utilize any 401(k) contribution matches available from your employer. In addition, you can set up a direct deposit or automatic, recurring transfer to your savings account for small amounts of money, such as $20, each pay period. It will add up over time, and hopefully, you won't even notice it. With future increases in income, you can adjust your savings amount as well.

If you earn an annual or one-time bonus, consider splitting it three ways: pay toward the principal balance on your student loan, save a portion of it and consider the last portion as "fun" money for you.

When those debt-free, retirement days are years or even decades in the future, there's bound to be moments where you get distracted by short-term growth strategies, like frequent trading or robo-investing. Carlo and Dufner suggest that, if you still have student debt, chasing short-term gains will only set you back.

"Debt will follow you eventually," says Dufner. "Even if you do the math and feel confident you can time the markets, none of that is guaranteed. But debt is guaranteed. You will pay it back, plus interest." Tackle the debt you have before you jump into a new situation that could cost you again.

"And when those short-term fun goals come up, like a new car or house, wait until you have the money," says Dufner. "If you want to invest, take full advantage of your tax-benefit accounts first. Get that full employer match on your 401(k) and max out your IRA contributions. When you start by investing in those accounts, you essentially have a leveraged investment account that allows your money to go further because you're paying less in taxes."

The same advice applies to windfalls. If you receive a promotion or a good tax return, pay off some of your debt, or transfer it straight to your IRA. You can also split the amount equally between debt payments, retirement savings and an emergency fund, depending on your needs and goals you set.

"An all-or-nothing approach to saving or paying off debt is not sustainable, because life doesn't work like that," says Dufner. You're going to make more money in some periods of your life and you're going to readjust because of other goals or obstacles.

"Say your car dies or you have to go back to school because you want to change your career. When life happens, the worst thing any of us can do is give up on our finances. Learn to flex instead," says Dufner.

Once you have a budget in place (or even if you're still struggling to create one) a financial advisor can help you stay focused on balancing debt with other goals, including saving for retirement. "A financial advisor will take the time to understand the debts you have and organize them appropriately," says Carlo.

When you work with a financial advisor, you gain access to their expertise and tools to help you plan out your future across different scenarios and life goals. Connect with a local Thrivent financial advisor to develop a plan that matches your long-term goals.