Education Costs Impact Retirement Savings

Education is a top retirement savings roadblock, according to results from E*TRADE’s latest quarterly StreetWise tracking study of experienced investors. Tied with rent or mortgage, education expenses, including student loans, are one of the biggest barriers when it comes to saving, with six out of 10 young investors choosing it first or second. In fact, concern about these costs has increased nearly 20 percentage points over the past four years.

Three out of five young investors have made an early withdrawal from their retirement account, with education as the most oft-cited reason — yet young investors think they’re financially savvy. Nearly two-thirds reported feeling extremely or very capable when it comes to managing their finances, and 80 percent said they’ve had moderate to heavy exposure to personal finance and investing.

“It’s no secret that education expenses can get in the way of saving for retirement, but clearly tapping into a retirement fund early is a serious issue that needs to be addressed,” said Mike Loewengart, vice president of investment strategy at E*TRADE Financial. “Fortunately, there are a number of tools and vehicles designed to help make saving for retirement easier, and the reality is younger investors have time on their side. When one factors in compounding interest, a little can in fact go a long way.”

Loewengart offered some tips to pass along to recent grads when investing for retirement:

  • Don’t miss out on your employer’s 401(k) plan. Many employers offer a retirement plan, which is a great place to kick-start investing, especially if it offers a matching contribution, which is as close to free money as one will ever come in the investing world.
  • When it comes to contributions, you can set it and forget it. Automatic investing plans allow investors to deposit a fixed amount at regularly scheduled intervals. It takes the emotion out of the equation and helps reduce risk through dollar-cost averaging by taking advantage of the natural ups and downs of the market.
  • You don’t need to pay a lot of a diversified portfolio. Fortunately, today there are myriad ETFs with expense ratios that have never been lower, hundreds of which are offered commission-free and deliver broad exposure to the market.
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