Post # 1
For those of you with significant student loans…. how do you balance paying off student loans and saving for retirement?
Obviously, every situation is different, differing interest rates, different ages, employer retirement plans, etc…. but I’d like to hear how the bees are doing it. DH and I paid off our credit cards and our cars will be paid off within a year, so we’re looking at having some extra cash. I have about $60k in student loan debt ranging from 4.5-6.8%. We don’t have much saved for retirement, but I do have a Roth IRA. I’ve been reading about how to balance this, but much of the advice I’m seeing says “Fund your 401k up to your employer’s match then pay debt”. Neither of us have that option, as DH is in school and my employer doesn’t offer a retirement plan. So, I’m particularly interested in hearing from those of you who can’t take advantage of employer plans.
Post # 2
We have a significant amount of student loan debt and aggressively save for retirement. We contribute the max to our 401(k) and I contribute an additional amount to an IRA. Every year you don’t contribute to retirement is money lost on investments. It’s very difficult to make that up due to the loss of compounding interest. We pay down our debt as aggressively as we can, but our priority is retirement. We aim to retire at 60 and if we can, 55. So, that is clearly a priority for us. But, we also have a financial planner who encourages retirement savings over paying off our debt so I feel confident that is the most prudent path.
Post # 3
I have a pretty significant amount of student loans. Fiance and I both contribute to our retirement 401K’s and have since we started working. I would NEVER give up my employers match if at all possible. That’s just leaving money on the table. I’ve always disagreed with Dave Ramsey on that, although I do enjoy most of his advice.
We try to throw some extra on my loans but we basically treat them like our mortgage at this point. Retirement is more important and like PP said, you can never make up the years you don’t contribute.
Post # 4
This is a tough one. For the first year or two of employment (DH and I both went to grad school and both have loans from said school) we put money into our 401ks but did not max them out, then made extra payments towards loans. After our salaries increased, we switched to maxing out 401ks and also putting extra money towards loans. Any extra cash goes towards loans. We’ve already built savings, although it’s on the low side of what is recommended. The interest paid on loans far outweighs whatever interests we’d get on that savings, so we plan to continue paying down debt first with any extra cash.
FYI, neither of our employers match 401k contributions.
Post # 5
We had ~100k+ in student loans after we both graduated (both had advanced degrees) and we don’t have employer retirement plans so saving is entirely up to us.
We had roughly ~1.5k a month in savings when we joined finances . We put ~1k towards my student loan (his was interest free at the time, mine was ~6.5% interest) and ~500 towards retirement. Once mine was paid off, we moved payments to his loan (our monthly savings each month raised slightly but we put it all towards student loans) until it too was paid off.
Now we put ~1.5k a month towards retirement, everything above that goes towards a house downpayment.
ETA: This makes it sound like we were paying off loans for 100+ months, in reality we benefited from a couple of ‘windfalls’ that all went straight towards student loans so we were fortunate to pay them off much faster. General rule for us is that retirement contribution stays steady all the time and windfalls are allocated to other savings areas.
Post # 6
I’m glad you mentioned Dave Ramsey, because I know that there are quite a few superfans on here, but it does seem like his advice of paying off all student loans before saving for retirement might not be the best. It seems like the other stuff I read advocates more in the other direction and prioritizes retirement over student debt.
Post # 7
To reiterate what chicagold said – the very first thing we did with savings was build up an emergency fund of ~3 months all inclusive (including all fun money/splurges/vacation money) or ~6 months of ‘scrimping’ (i.e. basic living costs that we could survive on).
During the time we were buliding that fund, we only paid minimum payments on student loans and nothing towards retirement.
It was only after that emergency fund was built did we start paying extra towards our student loans and start contributing regularly to retirement.
Post # 8
typically if you can earn
more money with your money than you are spending on interest payments it isn’t worth it to pay debt off early. Depending on your investment strategy your retirement account should earn more than you pay in student loan interest. It is incredibly difficult to catch up if you start saving for retirement late so if I were you I would max out your IRAs and then any extra cash put toward the loan. Case in point I started saving for retirement at age 22 (thanks mom for making me do that!) and although I no longer contribute to that particular account but it has increased $10k in the past 12 months just sitting there! The sooner you start savings for retirement the less you have to put aside each month.
Post # 9
I agree with that, emergency savings was our first priority.
I’m thinking this is what we’re going to end up doing, fully fund IRAs for both of us and then use the extra for student loans.
Post # 10
An employers match is essentially free money and you don’t get that back if you don’t take advantage of it. I save at least up to the match amount MINIMUM. I did this with student loans and credit card debt. I say you have to do both or there’s no way you’ll catch up later for retirement.
Obviously though if the choice is rent/food or retirement that’s another issue. But there’s sometimes an option to live somewhete cheaper or cut expenses. But sometimes that’s been done and there’s none extra then you might have to wait to save extra.
Post # 11
I have roughly 40k in student loans (just started paying on them) and my employer matches our 401k. They match fifty percent of our contribution,up to a maximum of 6%.
I also have a car payment, which my total left to pay on my car is roughly 20k. Currently, I haven’t registered my 401k plan yet but I know I need to. I’m just unsure of what to contribute much like the OP, because I’ve also got debt I want to pay off.
Post # 12
Employer match is a great benefit and I agree that should be the first priority to fund up to the match if your employer offers it. I wish my employer offered it, it’d make this decision a little easier, but they don’t offer any retirement plan at all.
Post # 13
get that match! It’s free money!
Post # 14
This is what we do too. My dad is a big financial guy and he has stressed the importance of starting and building your retirement fund early since I was a kid – opened an account for me when I was 15, he takes it seriously! I always max out the % my employer will match, and we pay DH’s student loans like a mortgage. It would definitely be harder for me to justify cutting that money out if my employer didn’t match it (100% of my contribution up to 6%).
Post # 15
I think about it this way–is my debt interest rate higher than the yield would be from an investment return? If you’ve got a very low interest rate on your debt, it may make sense to push money towards your 401K/retirement plan, since your yields will be higher than the amount you’re shelling back in interest to your loan holder.
When your debt is getting up around that 6-7% interest rate mark, I’d probably push more towards paying the loan off because there’s a chance your annual interest returns won’t make up for what you’re paying.