Tough choices: Saving for tomorrow or today?

Why it’s so hard to save for retirement when you’re staring down student loans today

It was a completely ironic the moment. Over the past five years I saved $11,000 toward retirement but my student loan balance was still around $40,000. I looked at my IRA balance and realized the future I had been saving for was taunting me.

Though not technically a millennial (those born between 1981–1997), I can identify with a generation that is burdened with student debt, moving back home and delaying major life decisions like marriage, home buying, children and more. The prospect of social security seems doubtful, yet we can’t quite seem to make enough to save for retirement at the aggressive rates most experts would recommend. A recent survey by showed that about 18% of respondents 18–29 years old feel too swamped in student debt to save.

I definitely consider myself among that 18%. Through sheer will and side hustles I have worked down my balance from $40K to $60K despite a 5.75% interest rate. Yet I still feel saddled down by debt.

All of my hustling working part-time night shifts at restaurants and picking up freelance jobs, on top of my full-time job became the norm. Any tax return I received went straight toward the balance. So did birthday gifts and other small windfalls of money. Budgeting has always been in the equation. Yet on each $350 monthly payment I made, only $86 was going toward the principal.

Eighty. Six. Dollars. That’s it.

Eventually, I decided I needed to look at all my options for paying off student loan debt, including my retirement funds.

Time and money. Weighing it all out is stressful but necessary sometimes.

Here are three questions that led me to my final decision and might able to help you too if you’re debating paying off student loans in radical ways.

  • How serious are you about paying off debt?
    For me this was the easiest. Student debt has been weighing on me mentally for years. I know I want out, and I’m willing to make some sacrifices to get there. It’s not just about raiding your retirement though. It’s about budgeting and really looking at your financial big picture and really staying committed to reaching this goal in light of all areas of your life.
  • How much interest can you earn on the IRA vs what you are paying on loans?
    Knowing your interest rates are key as you work through the decision.
    The interest rate I was earning on my IRA wasn’t even half of what I paid on my student loans. Compound interest on savings can be powerful but it also works the other way around. My loan of $60K at 5.75% interest for 30 years would easily amount to paying $120K+ over the life of the loan. I hoped it wouldn’t take me that long but growing a family and other priorities made it hard to see how I could tighten that timeline without some serious action.
  • Is the tax penalty will it be worth it? states the current penalty for pulling from an IRA is 10%, plus the amount will be included in your gross income. That’s a steep price to pay so you have to be ready and willing to bite the bullet. I had worked my balance down a good amount and felt the extra funds would bring me to a place where my debt to income ratio was better giving me the chance to make other key moves like refinancing my student loans. It’s a good idea to call your tax consultant to really understand how this will impact you in the end.

The mental debate about whether to save for the future or try to get ahead today can be exhausting. There’s definitely some guilt for robbing myself of a comfortable future but in the end…

I finally did it.

I bit the bullet and put that $11K toward my student loans. I braced myself for the inevitable (and painful) bill that would land on my door step during tax season. I calculated the tax penalty and put some aside.

A year later and more payments under my belt, staring at $23K as a balance instead of $40K feels a lot more manageable. I still get anxiety when I think of how long this is all taking me. I want to do crazy things like sell everything we have or take on more jobs. Still in the end I’d do it again.

Because now there is light at the end of the tunnel.

The path to financial freedom is different for all of us. Each situation is so unique there’s no way for someone can tell you what’s right or wrong. Only you know the answers. Those of us with student debt know it will still take me some time to pay things off — but be sure of this, we will get there.

I’m probably going to do this move the day I make my last payment.