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Addressing Student Loan Burden Key to Helping Millennials Save for Retirement

Finding more holistic, intertwined financial management solutions to help Millennials tackle their student loan debt and assist them in saving more effectively for retirement was a key takeaway at a June 21 forum sponsored by the Women’s Institute for a Secure Retirement (WISER).

Entitled “The Millennial Perspective: An Intergenerational Discussion on Retirement Solutions,” the forum featured a presentation by the 2017 iOme Challenge winning team of college students who submitted a 56-page policy proposal to revamp student loan programs with the goal of redirecting the savings into retirement planning. The winning team, comprised of students from Columbia University, Amherst College and Duke University, proposed to reform loan repayment policies, establish a comprehensive student loan insurance plan, and integrate accounts between student loans and retirement savings.

Attendees also heard from policy experts who discussed current retirement savings trends of Millennials and offered potential solutions to assist the generation. Discussion topics included the advantages of having voluntary insurance benefits to help with unforeseen emergencies, employer solutions to help employees avoid payday loans and advancements in technology to teach individuals about financial literacy.

Noting that many students entered into loans without understanding the terms of their debt, James Mahaney, a V.P. with Prudential’s Strategic Initiatives unit, told attendees that student loan debt is having an impact on borrower’s financial and emotional wellness, leaving many unsure whether they will be able to buy a house, save for retirement, or right themselves financially.

Andrew Remo, the American Retirement Association’s Director of Legislative Affairs, suggested that integrating health savings accounts (HSAs) into the 401(k) structure would give participants the maximum bang for their buck. He described how Congress is actively considering doubling the contribution limit of HSAs, and that HSAs’ “triple tax benefit” makes them the most valuable vehicle for saving.

Remo further noted that integration of HSAs and 401(k)s is a big priority of the ARA and that the organization is looking at how best to make the concept work. He added that most individuals, particularly Millennials, will likely spend the vast majority of their savings in retirement on health care expense, and it’s prudent to consider how best to build up a large pot of money to spend on health care. Remo suggested that HSAs, with their unique tax benefits, offer a very powerful savings tool, particularly when integrated with the 401(k).

Spencer Williams, President and CEO of the Retirement Clearinghouse, urged attendees to look at the “big picture,” noting that there is an extreme focus centered on mechanisms to save for retirement, but less attention given to preserving savings. Williams cited an EBRI study on retirement plan leakage that found that $2 trillion could be added to DC plans if stakeholders could find a way to stop leakage. He noted that Millennials are most likely to cash out when they leave a job, adding that more than 60% of cash-outs are not taken for emergency reasons. In trying to prevent leakage, Williams recommended working on behavioral changes at the individual level and encouraging participants to focus on how they plan to use the money. Williams further suggested creating a mechanism for auto portability in DC plans to make it easier for employees to move money between employers when they change jobs. With a default auto portability system in place, Williams said he expects to see significant changes in savings over time.