Pay off student loans or save for retirement—can I do both?

Paying off student loans is key to financial wellness 

If you’ve been sending off student loan payments to the government or a private lender, then you know how it can strain your budget. Manulife’s third annual stress, finances, and well-being survey found that repaying student loans is a top financial concern for Canadian workers. 

Until you get your loans completely paid off, you may feel some degree of financial stress. But if you can stay committed to retiring your school debt while putting something away for your own retirement, you’ll be tackling two hugely important financial goals. That’s something to be proud of—and it can be possible. Consider using strategies like the ones below to help you reach your goal.

1. Save enough to get your full retirement plan match

If you’re eligible for a group Registered Retirement Savings Plan (RRSP) or other workplace retirement plan—and your employer makes matching contributions—then you should consider contributing to the plan. Many employers offer to match your contributions, putting money in your RRSP every time you do, up to a certain limit. There just aren’t many ways you can get this kind of extra money.

Depending on your retirement plan’s rules, you may need to work for your current employer for a certain amount of time before matching contributions belong to you—a process called vesting, and any money you withdraw from your workplace plan may be subject to additional taxes or penalties.

Even if you owe a lot in student loans, it may be worth trying to find the money in your budget to earn your retirement plan match.

2. Include retirement saving in your budget

When thinking about your personal budget, it’s easy to see student debt as a pressing, immediate need and retirement saving as less urgent, but there are important reasons to make retirement saving a priority throughout your career—including the opportunity to take advantage of the power of long-term, compounded growth.

One budgeting hack is to dedicate some of your income to pursuing financial goals. These might include saving for a home, investing for a child’s education, or paying down credit card debt. Retirement saving is another natural fit.

A few points about fitting retirement saving in your budget:

• The automatic nature of saving through payroll deductions makes it an easy habit to keep.
  
• Contributing pretax money to your retirement plan can help put a bit more money in your paycheque each month—giving you more to put into each bucket.
  
• People’s income and financial goals tend to change over time; for instance, as your earnings increase and you pay off your student loans, you should have more to put into your retirement savings.
  

3. Customize your payment terms

For student loans, if you can afford it, look for opportunities to customize your payment terms. For example, you may want to change the length of your loan period, increase your monthly payments, or change your payment frequency; you can also make lump-sum payments. Check with your financial institution to see if you can repay your student loan without penalty. 

Government loans

Did you know that no interest is charged on Canada Student Loans? But you’re still responsible for paying any interest that may have accrued on your loan before April 1, 2021. Also, some provincial loans still have interest. If you pay interest on your government student loans, you can claim a 15% tax credit. 

The Government of Canada has lots of information on federal and provincial student loan payment options, how to make additional payments, and what to do if you need assistance or can’t repay. 

There’s also a loan repayment estimator you can use to help estimate the monthly payments you need to make to repay your government student loans. 

With a little homework, you can balance student loan debt and retirement saving

Thanks to the convenient, tax-advantaged saving opportunities and long-time growth potential they can offer, workplace retirement plans are an important way to help you build for the future. At the same time, it’s important to keep up with your student loan payments and put them behind you.

With some planning, a commitment to retirement saving—even if you start small—and any workplace or government repayment benefits that may be available to you, you can strike the right balance. Later down the road, you’ll be glad you did.