How to overcome one of the biggest retirement hurdles

Dhara Singh

Stifling debt is keeping many American workers from saving for retirement. But it’s still possible to meet both obligations, personal finance experts say.

One in 3 employees who don’t contribute to their workplace retirement say it’s because they have too much debt, according to a survey this year by Natixis Investment Managers. More than 2 in 5 workers said general credit card debt hampered their retirement savings, while over a quarter of millennials cited student loans.

But delaying contributions – no matter the reason – hurts your long-term financial security in your golden years.

“The sooner you start, the better,” said Nick Holeman, head of financial planning at Betterment, an online investment company. “Even if it's [small], the better off you’ll be in the long run.”

Even though they have many years to go, only 1 in 4 millennials think they’ll have enough to retire comfortably.

Tackle debt first

While Holeman typically recommends taking advantage of your employer’s 401(k) retirement plan, especially if there’s a company match, you may want to put that on hold for now if you have high-interest debt.

“If your student loans have high interest rates, put most of your cash flow towards those,” Holeman said. But if your loans carry a rate of 5% or less, you can put more money toward retirement.

Federal subsidized and unsubsidized undergraduate loans have a fixed 4.53% interest rate, while federal graduate loans have a fixed 6.08% rate. Private student loans can have both fixed and variable rates up to 12.81%, according to Nerdwallet.

Credit card debt is even worse and demands your immediate attention over retirement. The average interest rate on a credit card was 15.1% as of August, according to the St. Louis Federal Reserve Bank.

Tackling it may mean “tweaking your lifestyle,” Holeman said.

A graduating student wears a money lei, a necklace made of US dollar bills, at the Pasadena City College graduation ceremony. Student debt is a big obstacle to saving for retirement. (Photo: ROBYN BECK/AFP/Getty Images)

“I think the average household has around $5,000 in credit card debt and that’s even before you start saving for retirement goals,” said Holeman. “You need to start living in your means and try to pay your credit card in full every month.”

Or juggle both

David Edwards, president of Heron Wealth in New York, encourages people to contribute at least a small amount to your retirement plan each month, even if they have debt.

“Our younger clients face this issue all the time,” Edwards said. “Start with a 1% contribution. And every time you get a raise, increase your contribution rate by another 1%.”

By not contributing to your 401(k), you forfeit your employer’s match – if one is offered – and essentially leave money on the table. In fact, a company match is a huge incentive to get workers to contribute to their 401(k)s in the first place, according to the Natixis study.

There’s still hope

Even though 3 in 4 millennials think they won’t have enough to retire comfortably, according to the study, Holeman thinks they should be more optimistic.

“A lot of younger individuals must be scared and nervous to get started,” he said. “The funny thing is the best time to invest was five years ago and the second-best time is today.”

Dhara is a writer for Yahoo Finance. Follow her on Twitter @dsinghx.

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