
Planning for Retirement While You’re Still Paying off Debt
We start putting money into our 401 (k) and IRA plans early. Popular opinion and conventional wisdom both suggest that we should make retirement a priority as soon as we enter the workforce. But these days, many young professionals have student loans to pay off and diverting funds toward retirement and paying off debt can seem daunting. Paying off debt as you approach retirement age can also make us feel unsure of our priorities. What should take precedence, debt or retirement savings?
If You Can Do Both, Do!
If you are in the fortunate position of having enough funds to pay off debts while saving for retirement, you absolutely should! Debt and retirement savings will grow over time — debt accrues interest and retirement savings should grow exponentially over time. What this means is that, for both of these things, addressing your financial goals early on will greatly benefit you down the road. If you need to decide whether to put more money toward paying off your debts versus in your retirement account, it’s best to take care of your debts first. You’ll have time afterward to put all of the money toward your retirement.
If You Need to Put First Things First
The closer you are to retiring, the more tempting it is to keep putting money in your retirement account and hope that you’ll have enough accrued to deal with your debt. Something to strongly consider: what is the interest rate on your debt? How much is your retirement account earning? If the interest is going to be more than what you would save by investing money in your retirement funds, it is in your best interest to pay off your debt first before diverting additional funds to your retirement account.
How you save for retirement and pay off your debt really depends on your personal financial situation. Generally, it is probably to the best to take care of any outstanding debts before making an aggressive campaign to add to your retirement savings. Because everyone is different, you many consider consulting a financial advisor.
