Financial Wellness: Thoughts From a Financial Planner

Raffa Financial ServicesRaffa Financial Services on 03/19/2020

As I visit with my clients, one of the biggest concerns they have is the amount of student loan debt their young employees have. The statistics are staggering:

  • US citizens have a combined $1.6 trillion - yes, trillion -in student loan debt and that number is on track to double by 2025.
  • Over 1/3 of participants have some type of student debt.
  • While the majority of the debt lies with those employees under 40 years old, Generation-X and Baby Boomers also have a substantial amount.
  • Student debt impacts 44 million Americans, and 11 million loans are currently in default or distress.

From personal experience, I find many young employees are forgoing participating in their company’s retirement plan because they have student debt payments. Because of this, they are also giving up their company’s 401(k) or 403(b) match. They are not able to take advantage of the match their employer is willing to give them. If employers can help their employees with the issues that come with student loan debt, they would be setting themselves apart as an employer of choice.

Let’s face it, we have a retirement savings crisis in this country. Only 50% of the working population is on track to have a sustainable retirement, and student debt isn’t helping. The Center for Retirement Research did a study across the nation and determined that the average American needs to be saving 14%. A very common match in retirement plans is $ for $ up to 5% of compensation. So if an employee contributes 5% of their pay, they will get 5% from their employer – 10% in total. Even with this generous employer contribution, it still leaves an average 4% shortfall.

The young work force is the future.  Employers have to prioritize attracting and maintaining this vibrant group, and addressing student debt is critical. Young participants are looking to work with organizations that have solutions.

We have had great success creating college debt payment plans for employers that allow for match dollars to be diverted to student debt rather than being lost to those who feel they can’t afford a 401(k) contribution. In addition, helping employees renegotiate their federal loans, lower payments, and qualify for debt forgiveness has proven to be another great solution for employers to offer.

An ASA (American Statistical Association) survey of 500 employees ages 22 to 33 highlights how student loan debt negatively impacts their focus, well-being, and retirement planning, as well as delays their pursuit of additional education. 86% of respondents said they would commit to their employer for 5 years if they helped pay off their student loans. SHRM reported that health insurance, paid time off, and student loan repayment aid—in that order—were the top three benefits identified by young people approaching the workforce when asked what benefits they most value from an employer.

Become an employer of choice: investigate a plan to address student loan debt head on.

 

Content provided by: Eduardo Gimenez, CFP®, AIF® | Vice President

 

We help clients identify organizational challenges, create big picture strategies, and put customized solutions in place. From tailored benefit programs to custom retirement plans to risk management services, we’ve got you covered.  

 

Photo by garloon

 

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