In our work, we see many recent dental graduates with huge debt loads — $300,000, $400,000 or even $500,000 right out of school. They end up in our practice, often overwhelmed with how to pay down their debt. And while most of them know that their income is solid and poised to grow, they still grapple with whether it makes sense to pay off their debt, or to minimize their loan payments and, instead, set aside money for the future.
No matter what your goal is, our philosophy is that you’re better off with a plan. Even for grads who “just want to be done” with their debt, we take a step back and start talking about the bigger vision — their plan for the future.
You have a finite amount of time to accomplish your goals. You made an agreement with a lender to borrow money, and you are obligated to repay your loans. Therefore, one of your goals will need to be debt reduction. Another goal will be to stop working at some point (even people who say they plan to work forever end up having to stop working at some point.) It may seem unnecessary to think about retirement before you even get your career going, but in some ways, that’s exactly what you need to do.
By going through a sound and measured financial planning process with an experienced advisor, you will discover the right balance for you. You will find out how much of your disposable income you can set aside toward retirement and other future goals, and how much you will be able to contribute to paying down your student loans.
We often hear individuals say they want to get a handle on their debt first, then start saving. Say you delay saving for retirement for a five- or 10-year period. This can be detrimental to your long-term financial success. Through compounding interest, even small, regular contributions to retirement savings accounts can add up over time. Perhaps you can only set aside a modest amount of money. Start using your 401(k), IRA or whatever other savings vehicles are available to you. Preferably, you’ll want to use tax-advantaged saving accounts such as 401(k)s and IRAs, where your contributions will be tax-deductible in the year they are made.
Saving is a muscle that needs to be developed. We tell our clients to save at least 20 percent of their gross income out of the gate. As your income increases, you may actually nudge this up. It’s a baseline goal. Sometimes it’s achievable, sometimes it’s not. And even if it’s not achievable, maybe you can afford to start saving 10 percent of your income and grow it from there. Don’t hesitate today, just because you feel like what you can do is not enough. Every little bit counts.
One last word on interest rates: If your loans are locked at a favorable rate, then there’s no need to accelerate them or to refinance. Just make your loan payments and save as much as you can toward retirement. If your loans are not at a competitive rate, you will want to look at refinancing them to free up cash flow that you can put toward retirement goals.
Student debt should not hold you back from fulfilling your retirement dream. With proper planning and time on your side, you should be able to achieve your vision.
~Joshua C. Miller, AIF, Wealth Advisor, Treloar & Heisel Wealth Management
Treloar & Heisel, Treloar & Heisel Wealth Management, and Treloar & Heisel Risk Management are all divisions of Treloar & Heisel, Inc.
Investment Advice offered through WCG Wealth Advisors, LLC a Registered Investment Advisor doing business as Treloar & Heisel Wealth Management. Treloar & Heisel Wealth Management is a separate entity from The Wealth Consulting Group and WCG Wealth Advisors, LLC.
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