President Joe Biden’s recently announced student loan forgiveness plan is slated to provide relief to 43 million borrowers — and may help 20 million debtors get rid of their loans completely, according to an Aug. 24 White House press statement.
Given up to $20,000 in loan forgiveness by the federal government, there is a huge opportunity for millions of borrowers to grow their wealth by investing and paying off other debts (or make major life changes like buying a home, starting a family or launching a business).
There is also a great opportunity to contribute significantly to your retirement savings.
According to an Aug. 22 CNBC/Momentive survey, when borrowers were asked what they would do if student loan forgiveness gave them greater budgetary freedom, 45% said they would save that money for retirement — the second most popular answer behind paying off other loans (53%).
“It’s not just a windfall, it’s an opportunity,” said Rose Niang, director of financial planning at Edelman Financial Engines, per CNBC. “It’s an opportunity to propel yourself to the next level; it’s an opportunity to better your financial life.”
As Dan Casey, founder of Bridgeriver Advisors, told CNBC, “If student debt has affected your ability to save for retirement, use the additional monthly income not spent on student loans to open or contribute to an individual retirement account, 401(k) or other retirement savings plan.”
The Time to Start Saving For Retirement is Now
As Accounting Today explained, an average 40-year-old man has around 40 years ahead of him to convert $10,000 into $110,000, assuming an annual return of 6% over 40 years. A 40-year-old man today has a life expectancy of 81.5, according to the Social Security Administration.
Barring traditional IRA or 401(k) contributions, starting a Roth IRA for you or a child is a great way to use “forgiveness funds.” Roth IRAs are popular among retirement investors because contributions are made after tax and qualified future withdrawals are tax free. They also have no required minimum distributions (RMDs), so you can decide when you want to withdraw money.
According to Education Data Initiative’s “Student Loan Debt by Age” report, 5.2 million student loan debtors in their fifties and 2.8 million in their sixties could benefit from Biden’s forgiveness plan. Less money being tied up in student loan payments means an opportunity to divert those funds into retirement plans.
As Dan Serra, senior financial advisor at Sagevest Wealth Management, told Accounting Today, “It will be a relief for those older clients who are running behind in saving for retirement because they have had student loan payments.”
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This article originally appeared on GOBankingRates.com: How Biden’s Student Loan Forgiveness Plan Can Boost Retirement Savings