Life After Student Loans: Pensions, Property & Investments
For many graduates just starting out in their career, their first financial hurdle is to pay off their student loan debt as quickly as possible. Indeed, the moment that you make that final monthly student loan payment is certainly worth celebrating. However, this is also the time to begin considering saving for retirement.
Even if you want to budget strictly tight now, siphoning out some of your income every month will leave you more comfortable in the future and there’s much to gain from starting this process early. Here’s a brief overview of your options:
One of the most popular ways to save for retirement is to set up a tax-deferred pension plan (also known as a ‘defined contribution plan’) through your employer. With this type of pension – which includes 401(k)s, 403(b)s and 457s – money is taken from your monthly paycheck before tax is applied.
It’s worth noting that, for expats living in Britain, there’s also the option to get a Self Invested Personal Pension (SIPP). Available in the UK only, this unique type of pension allows you to invest your retirement savings however you’d like, rather than leaving your pension provider in control of how the funds are invested. With this type of pension, confident investors or their financial advisors can simply visit the online SIPP centre of their SIPP provider to manage their investments.
Whilst the property market took a mighty stumble during the recent recession, investing in bricks and mortar properties remains a potentially lucrative way to save for retirement. Real estate products on the stock market may come with more risks, but purchasing a physical property – residential or commercial – in an up-and-coming area is typically a solid long-term investment. For young professionals and families, getting on the property ladder is a major step in the right direction. Picking a property that will keep its structural integrity over time, in an area that is expected to stay in demand, is crucial to ensuring your investment is worthwhile.
The Stock Market
There are inevitable risks that go along with investing in the stock market. However, not all types of financial products on the stock market carry high risk. Investing in the stock market remains a very sound way of getting more from your retirement savings. In fact, as CNN Money reports, most financial advisers recommend that those with 20 or more years until retirement invest at least 75% of their portfolio in stocks and stock funds. The key to success in the stock market is to go after gradual long-term gains, rather than short-term windfalls, and to ensure your portfolio is diverse.
It can be tempting to relax your budgeting habits after paying off your student loans. However, if you haven’t already, it’s at this stage that you may want to consider saving for retirement. When it comes to pensions, savings and investments, it’s always beneficial to start early.
Image by Simon Cunningham, used under Creative Comms license