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The Reality of Retiring With Parent PLUS Loans

Oct 26th, 2021 • Damian Dunn

I am 60 years old and my husband is 61. We paid off the original mortgage on our house, but have a home equity loan we are paying on of about $40,000. 

That I could deal with. 

But we have 5 children and took out parent loans over 10 or 15 years. My husband would pay on these and I never really knew the amount. When I finally asked him how close we were to having them paid off (about a year ago), I was shocked to learn it was almost $80,000!! I feel forlorn and can’t see an end in sight. I would so like to retire like my friends are doing, but this debt is like an albatross around my neck and makes my relationship with my husband strained, too.

Do you have any words of wisdom for me? He has a 401K and I have a 403B but I thought we could use those in retirement. I didn’t think we’d be paying off our kids’ college until we died!

Jesse


Heading into retirement with student loans can be a serious issue, Jesse. Millions of Americans aged 60 and over are trying to figure out how to deal with the debt they assumed to put their kids through college. Mentally, you’re ready to retire and enjoy life with your family and friends. On the other hand, can the money you’ve saved for retirement support the additional expense of the student loans well into retirement? 

That’s actually where I’d start, Jesse. You’re 60, your husband is 61. It’s time to do some back of the napkin projections. Start adding up all of the monthly expenses you expect to have during retirement. Don’t forget things like travel, insurances, auto repairs and license plates gifts for kids and grandkids… I’m talking about everything you can think of. (Note: if you’re looking at an expense you only pay once a year, divide that number by twelve and use that.) Now, add all of those expenses up and multiply by twelve. That’s the amount of money you’re projecting you’ll need each year during retirement. 

Next, find out what your social security benefit projections are. In fact, you may really benefit from a trip to the local Social Security office to talk through some options about how your benefit changes based on the age you retire. While you’re there, get the projection for the monthly benefit for you and your husband at the age you intend on beginning benefits. Add those two numbers together and multiply by 12. 

For the next step, subtract the projected annual Social Security benefit from your total projected expenses. The result is the amount of money you need to support your desired lifestyle during retirement. The next step is to see if your accumulated retirement assets will be able to support that need. 

Add up all of the assets you have set aside for retirement. 401(k), 403(b), IRA, Roth IRA, etc. Take that number and multiply it by four percent. Why four percent? For a long time that was considered the standard amount of withdrawals for a portfolio to be able to withstand each year in both good and bad markets without depleting principal too quickly. Many advisors use smaller numbers these days, but we’ll start here. 

Anyway, does the product of your retirement assets multiplied by four percent give you a larger or smaller amount of money than your projected need? This, by the way, is just a jumping off point, Jesse. We haven’t accounted for taxes, investment style, or anything of the sort. This is to just get us started. 

Maybe you just found out that things might not look as bad as you anticipated? Maybe you just found out that things are as bad as you thought? With some more detailed information and just a little bit of time, any qualified financial planner could give you a very detailed projection of where you stand now and I think that’s something you should consider. 

However, I have a few thoughts around your situation that I’d like to share. 

I noticed you said you have a 403(b) retirement account. That tells me you work for a governmental agency or non-profit of some sort. That also tells me that you could (and this is a stretch, but possible) be eligible for Public Service Loan Forgiveness (PSLF). A potential hurdle to cross here is that the loan would need to be in your name and will need to have been consolidated to a Direct Consolidation Loan so you can participate in an Income Contingent Repayment (ICR) plan. If those two things are true, you could be well on your way to some relief. Essentially, if your work/employer qualifies for the program and you’ve made 120 on time payments, you’ll need to get everything certified by filing a form. Once everything is approved and all requirements are met, you’d be able to file for forgiveness. You can find tons of good information about PSLF on the Federal Student Aid website here

Ideally, you’ve found a potential solution by now. Your savings will support the loan payments well into retirement or you qualify for PSLF. If not, keep reading. 

If the loans are going to be a burden to you and your husband during retirement, you’ve got a couple of options left. 

You can potentially work longer. I know it’s not what many people dream of, but this option can make a big difference. Not only will working longer provide potentially needed income, but it will prevent you from tapping into your retirement assets earlier allowing them to grow. Plus, you’ll probably (hopefully) delay social security until you retire which will result in a greater monthly benefit. All of these things combined will increase the likelihood of a successful retirement with or without student loans. 

A final idea, and one that I don’t think gets considered enough, is asking your kids to help repay or take over the remainder of the loans. Jesse, I’m sure you and your husband sacrificed in numerous ways to get 5 kids through college. And, I imagine they’re very thankful for everything you and your husband have done for them. And I bet, if they knew you may not be able to retire comfortably, the kids that are able to help you would do so without thinking twice. Many adults aren’t aware their parents are struggling to pay debt that was taken out to benefit them and would jump at the chance to help however they could. I have to believe that at least one of your children falls into that category, Jesse. 

The conversation doesn’t need to have a big build up. Rather, it can be direct and to the point. “Your dad and I have been working on some retirement planning and we’ve got a few things we’d like to get taken care of before we retire. Did you know we’re still paying on loans we took for your education? As it stands now, we don’t think we can get those eliminated before we retire in X years. Would you like to help us pay off that loan before then?”  In fact, if your child has good credit and a decent income, they may consider taking a loan with a private lender to qualify for an even lower rate. 

Will it be a comfortable conversation? Eh. Could it be a productive conversation? Oh, yeah. Jesse, I think you owe it to yourself and your kids to get them up to speed on where things stand and give them the opportunity to help. If your kids can’t or aren’t able to help, work through what we’ve discussed above and make a plan on how you’ll handle the future.

Good luck!

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