the retirees who will get less money

Considering Social Security is the cornerstone of most retirees’ finances, any changes in the system can very negatively impact their lives and finances. This is why we encourage everyone to keep informed about any changes the Social Security Administration may announce and evaluate the impact it will have on them and their families.

There are many things that can reduce benefits, and since most people struggle to cover their basic needs with the amount they receive from the SSA any cuts or reductions, even if temporary would not be welcome, and there is one threat most people haven’t taken into account.

Usually, benefits are reduced by retiring too early or by not working the full 35 years the SSA requires for the benefits calculations, and while these reductions are serious, they can also be potentially remedied by claiming later or increasing your earnings to compensate for the ceros in the algorithm. But what if we told you that there is a potential benefit cut of up to 21% that you cannot really fix and could affect you for years to come? This is the case of outstanding Student Loan Debt.

How Outstanding Student Debt Can Reduce Social Security Amount

While we tend to see Student Loan debt as affecting doe eyed 18-year-olds or young working professionals, the truth is that it is a problem that millions of older Americans also face. Those who went back to school as older adults or continued their education by getting a Masters or Doctorate will have higher debt than if they had gone to school earlier, and some who did go to school when it could have been affordable have had other obligations that have prevented them from doing repayments at an effective rate.

These harsh circumstances have meant that there are 2.2 million people over age 55 with outstanding loans. And although some of them are still working and can make serious attempts to pay it down before taking the retirement route, some of them are too late and are already on a fixed income that is too low to make significant dents.

The New School’s Schwartz Center for Economic Policy Analysis published a report on the situation and unfortunately concluded that “Older debtors lack the characteristics of younger debtors: they have more years left to work at the ‘optimal age’ (to earn a salary), more time to save for retirement, making it difficult for them to achieve promised ‘returns’ on their investment.”

Who is paying off their student loans and how long do they take to pay them off?

So what is the situation for those in the older age brackets? According to Federal Reserve data, workers between the ages of 55 and 64, so still not retired, take an average of 11 years to finish paying off their student loans, which would potentially put most of them squarely into retirement territory. And those who are most likely retired, aka 65 and older still need 3.5 years, which may not be as bad, but there is a harsh transition between working and receiving a salary to seeing your bank account dwindle because of unnecessary payments.

The Biden Administration has already forgiven $167 billion in student loans, benefiting 4.75 million Americans, primarily those employed in the public sector, and it continues efforts to reduce Student Loan debt. However, this relief has not yet extended to all demographics, leaving millions of older Americans still burdened with student debt. A recent report highlights that middle-income workers aged 55 and older constitute the largest segment of student loan borrowers.

Given that, on average, retirees collect $1,907 monthly. If 15% of this amount is withheld to repay student debt, it equates to $286 monthly and, to add insult to injury, the report also found that 14.9% of workers over 55 did not complete the educational programs for which they borrowed so they missed out on the potential benefits of their intended careers, exacerbating their financial challenges.