Why student loan debt is the biggest barrier to retirement planning

Retirement planning, innovation and adaptability aren't just buzzwords—they're survival tactics. Nate Moody, partner and retirement plan advisor at Lebel & Harriman Retirement Advisors, pulls no punches in discussing the urgent need for change in how Americans prepare for retirement.

But it’s the younger generation that’s facing the most brutal uphill battle in saving for retirement.

“The cost of housing, childcare, and student loan debt have continued to increase,” Moody explains. “I'd say that the area where we're seeing the most traction amongst plan sponsors is looking for employer sponsored solutions to remove those barriers to savings. Student loan debt is probably the biggest one right now. There’s a misconception is that this [just affects] Millennials and Gen Z. However, the fastest growing generation with student loan debt is actually Gen X - because they're taking out loans on behalf of their kids.”

Moody adds that legislative changes like the Secure Act 2.0 and the CARES Act are critical in these efforts. The focus on student loan assistance isn't just innovative; it's necessary, as traditional federal forgiveness programs become increasingly unreliable and politically charged. 

Moody’s firm operates in Maine, a state with a predominantly small business landscape.

"Almost every person who works at our firm grew up and lives in Maine, and we just have a really deep connection to Maine's people," he adds. This connection drives their focus on small businesses, an area many advisory firms ignore due to lower profit margins. Yet, Moody remains steadfast: "Employees that have access to a plan through work are significantly more prepared for retirement."

Their initiative to build a small business team underscores a commitment to those who are often left behind. With new state mandates requiring employers to offer retirement plans or enroll employees into state-run auto IRA programs, the urgency to support small businesses in providing these benefits has never been higher. "We've already helped, you know, 10 to 15 companies just this year alone, start retirement plans," Moody notes, highlighting the tangible impact of their efforts. 

When it comes to financial wellness, Moody doesn’t mince words. “Saving for retirement is one of a dozen financial hurdles people are navigating," he points out.

And Moody’s worries around retirement planning isn’t unfounded not alone here. According to data from CNBC and SurveyMonkey, 53% of Americans think they’re behind on retirement planning, with just half of households having a retirement account. Lebel & Harriman help clients address these concerns this by simplifying financial education and collaborating with local experts on a range of financial topics.

"One of the areas we're super proud of is just keeping things as simple and very down to earth as possible," he adds.

The decumulation phase—how retirees spend their savings—is where Moody says the industry has dropped the ball. New solutions like in-plan annuities, introduced by Secure Act 1.0, aim to change that.

"Being able to provide for lifetime income through in-plan annuities introduces fiduciary oversight, lower fees, and portability,” he says. “What's really nice about putting them into the retirement plan is now you're introducing fiduciary oversight - meaning you're going to see a lot more scrutiny around utilizing annuities. If, and only if they're in the client's best interest, you're also going to see lower fees because you're going to get some institutionalized pricing and you'll  see some portability aspect.”

However, each comes with its own set of challenges and trade-offs. "Target-date funds are easy, but they're not customizable," says Moody, pointing out that one-size-fits-all solutions may not meet the diverse needs of retirees. Managed accounts offer greater personalization but often come with higher fees and require active engagement from participants—something many employees lack.

A major industry shakeup looms on the horizon. The traditional wealth management model of rolling 401(k) assets into IRAs is under threat.

“It's going to become harder and harder to justify recommending to an individual client to roll their money out of that plan into an IRA," Moody predicts. With the potential for lower fees and better investment options within retirement plans, wealth managers will need to adapt or face obsolescence. This shift could lead to a new focus on financial planning and fee-for-service models, challenging the status quo of asset management.

Moody doesn’t shy away from addressing the complexities and contradictions within the industry.

“The wealth management industry as a whole has been built upon an asset-gathering model," he tells IN. As assets remain within retirement plans, advisors must pivot to remain relevant.

"You're going to see a lot more of a focus on financial planning and fee-for-service as opposed to assets under management," adds Moody.