Not Paying Your Student Loans? 3 Ways That Might Hurt Your Retirement

The resumption of student loans last October has further burdened many Americans. Combined with inflation and soaring rates, this additional financial obligation has taken a toll on budgets — and on savings.

Check Out: 16 Best Places To Retire in the US That Feel Like Europe

Read Next: 7 Common Debt Scenarios That Could Impact Your Retirement — and How To Handle Them

Against this backdrop, a recent Civic Science survey found that more than 60% of Americans say their loans prevent them from saving money for retirement.

What’s more, only 33% of student loan holders have been making regular payments, the Civic Science survey found. Meanwhile, “more than one-third of student loan holders say they do not plan to make any payments — a figure that increases to 50% for lower-income respondents making less than $25,000 per year,” the data showed.

But several experts are now stressing that not paying your student loans might hurt your retirement.

“Entering retirement with any significant debt can put you in a financially vulnerable situation and take away from your quality of life,” said Patricia Roberts, Chief Operating Officer, Gift of College . “Whether the debt requires you to re-enter the workforce, spend less on activities you had been hoping to enjoy, or simply interferes with your peace of mind, it’s likely to be a weight you wish hadn’t accompanied you into your later years.”

Sponsored: Owe the IRS $10K or more? Schedule a FREE consultation to see if you qualify for tax relief.

Less Time in the Market

As explained by Jesse Moore, senior vice president, head of student debt at Fidelity Investments , saving for retirement in your 20s and 30s means your money has more time to potentially benefit from compounding investment returns.

Moore added that data shows that three in 10 eligible employees with student debt are not contributing to their retirement plan and even more so, 84% of Americans with student debt say it impacts their ability to save for retirement.

To help ease some of this burden, we’re seeing many employers start to step up to help by integrating workplace benefits. The most popular ways we’re seeing employers chip into help is by simply making direct student loan debt payments on behalf of their employees.

Taking advantage of recent changes to retirement laws like SECURE 2.0 that allow companies to contribute a match into a retirement plan when the employee makes a student loan payment.

More Debt Means Less Savings and Achieving Less Milestones

More debt means more interest you’ll never get back, which leads to less savings for your retirement, said Moore, noting that with approximately 25% of the workforce holding student debt and the average debt level per individual topping $37,000, starting payments for the first time since the federal payment pause has been a challenge for millions.

“It’s important to strike a balance between chipping away at what you owe and continuing to save for your long-term goals,” added Moore.

As he further noted, struggling to pay student debt is can be so difficult that often gets in the way of such life events such as saving for retirement.

“For those approaching their senior years, this is particularly concerning as they try to balance saving for their approaching retirement while continuing to pay down their debt,” he said.

Hurt Your Credit Score and Potential Social Security Benefits Garnished

Avoiding payment on your student loans is a precarious financial decision and it can have far-reaching consequences for your finances now and in the future, said Stephen Kates, CFP, principal financial analyst, Annuity.org .

First, avoiding payment on any debt damages your credit score, which in turn impacts things like eligibility to rent an apartment, or to get a loan such as a mortgage, said Kates.

“People with lower credit scores tend to pay higher interest rates on debt and these can add to the debt burden already present from your student loans,” added Kates.

What’s more, for federal student loans, after a certain period of non-payment the government will begin to garnish wages or retain tax refunds for payment, he said.

“In regards to retirement, any financial trouble will make saving and investing for the long-term that much harder,” he added.

Finally, Kates argued that those who have student loan debt in retirement will at a minimum have additional costs that can weigh on their fixed-income lifestyle. Additionally, those who may have defaulted on their loans for more than nine months they can be sued and may be required to give up a portion of Social Security payments to service their delinquent loans.

Learn More: 7 Places To Retire That Are Similar to Europe but Way Cheaper

“Any unexpected reduction in income can be very damaging to retirees and may force people back into work to handle their expenses and debts,” added Kates.

This article originally appeared on GOBankingRates.com : Not Paying Your Student Loans? 3 Ways That Might Hurt Your Retirement