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Student Debt vs Saving for Retirement – Episode 203

student debt

IRA Financial’s Adam Bergman discusses whether the amount of student debt you have is worth the degree you receive and also if you are better off working and stashing your college funds in a retirement account.

In his latest podcast, Mr. Bergman weighs the amount of student debt versus saving more for retirement. He talks about the average salary depending on what type of degree you have. Further, he discusses the best way to reach the magical number of $1,000,000 once you reach retirement.

Student Debt Numbers

Let’s start by sharing a few statistics. First, Americans have about $1.5 TRILLION in outstanding student debt. That’s across about 44.7 million Americans that have student debt. The average debt is about $37,000 with a monthly payment of $393. Check out some more numbers from our friends at Forbes.

Democratic Presidential hopefuls, such as Senators Warren and Sanders, have made it a priority to eliminate student debt. This has become a hot button topic among pundits. How, as a nation, do we reduce or eliminate student debt? We don’t have that answer, but we can show you if it’s worth it in the long run.

Obviously, education is very important if you want to succeed in your professional career. However, not everyone can attend a university that charges $50,000 annually. Let’s take a look at some more numbers to see if it’s worth it.

How Much Can You Earn?

First, look at some average salaries based on the type of degree you have:

  • Master’s Degree – $70,000
  • Bachelor’s Degree – $60,000
  • Associate’s Degree – $42,000
  • High School Diploma – $35,000
  • No Diploma – $25,000

Source

The numbers show the better you are educated, the more money you earn on average. However, that may be a bit misleading. Yes, in general, if you go on to college after high school, there is more opportunities for you. On the other hand, there are millions of Americans who received less than a four year degree and still excelled in their careers. Trade schools, two year colleges and even straight into a career have worked for many people.

Debt vs. Retirement Saving

Let’s be clear, we fully support going to college and furthering your education. We do understand it’s not for everyone. Hard working individuals usually supersedes an expensive degree. It really boils down to the amount of money you need to go to college versus what you get out of it. For some, going to an Ivy League school is the way to go. That degree will take you a long way. For others, a community college or trade school is good enough to succeed. Choosing the latter means a lot less student debt in the future. Moreover, it clears the way to save for retirement and take advantage of tax deferral and compounding returns.

The general goal for your retirement fund is $1 million. People are living a lot longer and therefore need a larger next egg for retirement. If you retire at age 65, you may have 20+ years to live off your savings. About $50,000 is plenty to live off during your golden years. Obviously, the more money you save, the earlier you can retire and the more you can do once you hang up your work boots.

For those that opt to go to college, that’s four years of accumulating student debt. Further, if you want to be a doctor, lawyer, etc, that’s more college. That’s years that you may not be working (or working part time at most). On the other hand, if you go to school for two years (or don’t continue after high school), and jump into the workforce early on in life, that’s a jump start to save for retirement.

Is it Worth It?

Let’s look at some numbers to see if spending $50,000 annually at a university is better than going to work sooner. Let’s say you started working at age 20 and decided to fund a retirement account, such as an IRA or 401(k). If you were to contribute $300 every month until age 65 and received an 8% rate of return, you will have over $1.5 million when you retire. If all things were equal, except you waited until age 30 to start, you would only amass $670,000.

Even those with high paying jobs still suffer with student loan debt. Wouldn’t it be nice to not have to worry about that every month? Wouldn’t you like that money to work for you instead? The difference between a Top 50 university and Top 200 one is not that different. The biggest difference is the cost to you. In the end, the degree is just a piece of paper. It’s generally not worth more if you pay more to receive it.

Conclusion

Yes, education is very important for every American. However, student debt remains one of the nation’s biggest hurdles. Unless the politicians can figure out a system that allows everyone to go to college at a reasonable cost, it will always be a stumbling block. As we talked about, not everyone is cut out for college. However, even those that don’t get the best degree from the top universities can succeed. Hard worked, combined with little or no student debt, plus starting retirement savings early is a formula for success. Let your money work for you as early as you can!

As always, thanks for listening to/watching “Adam Bergman Talks.” Be sure to check out all of our podcasts on our SoundCloud page. Feel free to contact us if you have any questions or suggestions for future episodes!

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