How to help clients balance debt and retirement savings

Americans are holding more debt than ever. Household debt in the U.S. has increased more than 50% in the last decade to nearly $18 trillion, according to the Q2 2024 Quarterly Report on Household Debt and Credit from the Federal Reserve Bank of New York. This trend could pose a risk to their financial future, if not addressed.

Explain the risk of unchecked debt

Debt can hinder a client’s ability to save for retirement. Nearly half of all Americans who wish they would have saved more for retirement say that debt is limiting their ability to save for retirement, according to the 2024 Annual Retirement Study*. Low savings rates today to repay debts can mean little retirement income tomorrow. Your clients need to understand the risk that debt can pose to their financial future.

If debt is limiting your clients’ ability to save for retirement, they can miss out on compounding returns over time. With lower savings rates, they can be more vulnerable to risks that could deplete their savings faster than anticipated, such as inflation and increasing medical costs. At the same time, it can leave them with more limited options to fund their retirement lifestyle. Paying off debt can help lower monthly expenses, improve credit scores, and save on interest costs over time.

Questions to ask

When do you plan to retire?

How long your clients have until retirement is critical information. If they anticipate retiring in the near future, then increasing their retirement savings may be a top priority. A longer horizon until retirement gives more time to pay off debt and prepare for the future.

What type of debt do you carry?

Understanding the type of debt your clients carry will help develop a strategy moving forward. It’s important to look at the various debts a client has and which ones will cost more over time. Paying off high-interest debt like credit card balances should often be prioritized.

What support does your employer offer?

Make sure your clients are maximizing the retirement benefits through their employer. If their savings are already limited, they can’t afford to leave benefits like an employer 401(k) match on the table. Some employers even offer programs to help employees pay off debts like student loans and save for retirement at the same time.

 

Balancing debt with saving for the future

The majority of Americans (62%) said they are juggling so many financial goals that it’s hard to focus and prioritize*. This is where the guidance of a financial professional can help.

You can help clients build a strategy that balances debt management with saving for retirement and other future financial needs. That strategy will detail how clients can manage debt payments, accumulate savings for retirement, and address various risks to retirement that could be impacted by debt.

*Allianz Life conducted the 2024 Annual Retirement Study online survey in February and March 2024 with a nationally representative sample of 1,000 individuals age 25+ in the contiguous U.S. with an annual household income of $50K+ (single)/$75K+ (married/partnered) OR investable assets of $150K+.

Allianz Life Insurance Company of North America does not provide financial planning services.

Products are issued by Allianz Life Insurance Company of North America. Registered index-linked annuities (RILAs) are distributed by its affiliate, Allianz Life Financial Services, LLC, member FINRA, 5701 Golden Hills Drive, Minneapolis, MN 55416-1297. 800.542.5427 www.allianzlife.com

For financial professional use only – not for use with the public.