I’m 59 with $42,000 in my 401(k), $77,000 in student loans, and no property — is my retirement doomed?
4 weeks ago
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I’m 59 with just $42,000 in my 401(k), $77,000 in student loans, and no property — after a lifetime of steady work and past struggles, is my retirement doomed?
When you are 59, you are getting very close to retirement age.
Fidelity says you should aim to have eight times your salary saved by 60. Although this is quite a lofty recommendation, if you only have $42,000, you’ve likely fallen short of that milestone by a lot. This can be a tough place to be, especially if you don’t own any property and you also have $77,000 in student loan debt.
But many Americans are in a similar spot. Vanguard’s How America Saves report shows the median amount Americans have in defined contribution plans at age 55 to 64 is just $87,571.
Sadly many of those approaching retirement or retired with low savings may also carry debt. Credit card debt is the most common type of debt in households whose head is 65 years old or older, per one government report, but student loan debt has increased among these households in the past two decades. The Urban Institute estimated that as of August 2022 around 7.2 million older adults (age 50 and over) in the country carry student loan debt. Among these borrowers, 8%, or 580,000 older adults, were delinquent on their loans.
And when borrowers default on federal student loans, their Social Security benefits may be reduced due to forced collections. Between 2001 and 2019, the number of Social Security beneficiaries experiencing this increased from approximately 6,200 to 192,300.
You have options to try to get back on track. Here’s what you can do.
When you are very behind on retirement savings, you have a few options for getting things back on track.
First and foremost, you need to start saving aggressively. If you have only $42,000 invested, that would produce around $1,680 per year in annual income in retirement if you follow the 4% rule. That limit is recommended to avoid draining your account too quickly. Depending on how much your monthly Social Security benefits will be, that may be not be enough income.
You should aim to save as much as possible to bring up your account balance, even if you have to take a side job, do some overtime, and drastically cut spending to do it. You may even need to make big lifestyle changes, like moving to a place with cheaper rent or switching to a less expensive car to free up more money to invest. If you want to know how much you need to save, a popular guideline says you will need 80% of your pre-retirement income each year to maintain your current lifestyle during retirement. Use the 4% rule and calculate how big your portfolio balance will need to be for you to safely withdraw an adequate amount each year.
Taking advantage of tax benefits can help, though. If you have a 401(k) at work, you can contribute up to $23,500 plus make additional catch-up contributions since you are over the age of 50. Those catch-up contributions allow you to invest another $7,500 with pre-tax dollars this year, and from ages 60 to 63, you can make catch-up contributions as high as $11,250.
Managing your student loans will also be important.
“Stakeholders have expressed concern that holding student loan debt in retirement may affect the financial balance sheets of older households. Unlike other types of loans, student loans are usually not discharged if a borrower declares bankruptcy, and some Social Security benefits can be withheld to recover the student loan balance,” according to a 2021 Congressional Research Service report on debt in older households.
The remaining balance of $77,000 is very high, so you may want to look into which payment plan you’re on.
Income-driven plans cap payments at a percentage of income and allow forgiveness of debt after 20 or 25 years depending on which plan you pick. In an ideal world, you’d have this debt paid off before retirement However, you may be better off funneling more money into an investment account so you have income coming in and choosing an income-driven plan that will likely have low payments since your retirement income probably won’t be very high.
Working longer than normal is likely also going to be vital in your situation. In this, you also aren’t alone.
According to Pew Research around one in five Americans ages 65 and over were employed in 2023. This is close to double the number of elderly employed workers compared with 35 years prior.
Unfortunately, roughly half (48%) of those working in retirement felt they needed to work for financial reasons, per recent T. Rowe Price’s research.
The good news is that even if you have to work for financial reasons, you can hopefully still find work that you enjoy. Staying on the job for longer will also provide more opportunities to increase your retirement income. Specifically, you can benefit because:
You have more years to save and invest
You can delay a Social Security claim if you work, which increases your benefit
You won’t need to rely on your savings for as many years
If you can aim to stay in the workforce until 70, that would give you 11 more years to save. If you managed to contribute $500 a month on top of the $42,000 you’re starting with, you’d end up with just over $230,000 invested assuming a 10% average annual return. That’s not a fortune, but it’s not terrible — and you could also increase your standard Social Security benefit by 24% due to a delayed claim.
The sooner you start saving aggressively, and the sooner you make a plan to deal with your student loans, the better off you’ll be.
A financial adviser can help you explore repayment plans and make a retirement investing plan that helps to set you up for as much success as possible, so it may also be worth getting that professional help as well.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
