save for retirement or pay off debt


Have you ever imagined yourself as an 80 year old? I don’t think many of us sit around pondering what life will be like at 80. I am forever struck by an experience I had working as a law clerk to a judge right after law school. I was sitting in on a garnishment hearing. The defendants were a married couple, well into their 80’s. A creditor was garnishing their wages from their FULL TIMES JOBS. Yes, in their 80’s, they were still working full time because they had debt to pay off. It broke my heart! I don’t know exactly what I want to be doing in my 80’s, maybe I’ll still feel like working, who knows. All I know is that I definitely want the option of not working at some point in my life. And that makes the question I get all the time, “Should I save for retirement or pay off debt?” seem a little bit complex, or at least, that is how it feels in my own personal journey paying off $650k of student loan debt.

The thing about personal finance is that it is just that — personal. Whether you should save for retirement or pay off debt is a personal decision and depends on a lot of different factors. There’s really not a right or wrong way to look at it, other than what is best for you and your family. Making an educated decision is key.

Here is what you should consider in deciding if you should save for retirement or pay off debt:

What are your financial goals? 

The first thing you should consider when deciding whether to save for retirement or pay off debt, is what your financial goals are. Do you want to retire early? Do you want to retire at all? Do you want to live debt free? Why? Figuring out what you want and what is most important to you is essential before you can choose the path that is right for you. It’s like the classic exchange between Alice and the Cheshire Cat. Alice asks, “Would you tell me, please, which way I ought to go from here?” The cat says, “That depends a good deal on where you want to go.” So that is step one, figure out where you want to go.

Do you have high interest debt? 

Once you have an idea of what your financial goals are and where you want to go, it’s time to take a look at what kind of debt you have. If you have high interest earning debt (such as a credit card, or anything else above 8-9%) then it is in your best interest to pay off debt first since you’ll be giving yourself a better interest rate than what you would be earning in a retirement account. In other words, you’ll save more money by not having to pay your high interest on your credit card balance than you would earn in interest in your retirement account that would be accruing interest at a lower rate.

Do you have a large balance of debt? 

Another scenario where it would make more sense to pay off debt first is if you have a big balance of debt, even if you have a rate that is lower than 8-9%. Interest accruing on a big balance will most likely accrue in amounts way larger than you’ll be able to earn if you invested or otherwise put that money in a retirement account, so in this scenario, it may be best to pay off debt first, or at least to knock out a big portion of it before you contribute to retirement. When my husband and I started paying off our $650k of student loans, we waited until we’d paid off about $100k and then we refinanced with a private lender for a lower interest rate before we started contributing to retirement.

Do you have a retirement plan through your employer? Will your employer match your contributions? 

Another important factor to consider is whether you have a retirement plan (such as a 401(k)) through your employer and your employer is willing to match your contributions. If so, it’s a really good idea to put at least some money towards retirement, since you’ll be making more money with your employer’s contributions. Say for example, that your employer will match 50% of your contributions, up to 6% of your salary. If that is a case (and this is a fairly standard arrangement) then you should contribute 6% to fully maximize your match, if possible. That makes sense, since that will earn you the most money. The only situation that you should not do this, is if you have a high balance of credit card debt that has interest earning above 8-9%. The ideal scenario is where you can contribute to retirement like this, while still prioritizing paying off debt above all other financial goals.

Can you afford to do both? 

If you can afford to put extra money towards paying off debt and money beyond your minimum payments and contributing to retirement, you should do so simply for the reason that you’ll never get the time back to invest in retirement, and time makes ALL the difference in saving since interest will be accruing over the years. Remember not to look at paying off debt or saving for retirement in a vaccuum— you have to consider how much aspect of your finances impacts the rest of your finances.

Pros of paying off debt first

One of the biggest pros to paying off debt before contributing to retirement is simply the psychological effect–  the peace of mind that you’ll feel being debt free. But that peace of mind comes at the expense of not having anything saved up for retirement, and you’ll have to make up for lost time, which could be stressful later. Paying off debt now will free up more money down the road for you to save for retirement or meet other financial goals.

Pros of contributing to retirement now

The biggest pro of contributing to retirement now is that you’ll never get time back! If you are in your early twenties, for example, and you start saving for retirement before you pay off your student loans,  you’ll have an entire decade of savings that are accruing interest in  your behalf. That can really add up! The IRS puts limits on how much you can contribute to tax-advantaged retirement accounts every year. If you don’t take advantage of contributing up to that limit each year, you can never get that opportunity back.

Whether you should save for retirement or pay off debt is really a personal decision and depends on your own unique circumstances. The most important thing you can do is to simply make sure you are making an educated decision, understanding the pros and cons of whichever path you take. Remember the important part is having a plan that you are actively working towards to save for retirement and pay off debt. After that, it’s just a matter of sticking it out!

What about you? Are you paying off debt or contributing to retirement? Or both? Comment below! 

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save for retirement or pay off debt



  1. I’m currently maxing out my 401K and 457 and also aggressively tackling my student loan debt until it gets unde 200K and then I will tackle it a little less aggressively.

  2. Question – I have four student loans that are currently sitting with the Dept. of Ed (FedLoan Servicing). The highest rate is 7.9% and that’s on the highest principal balance. What do you recommend as far as refinancing to a private lender is concerned? I initially had them with FedLoan because I wanted them forgiven after working with the state or a non-profit for 10 years, but I keep finding more hoops and right now that would put me on the hook for another 6 years of making nothing but minimum payments. I just married and now, we have decided to tackle it with a snowball method and are set to have them paid off by 2022. So instead of settling for the minimum payments and hope for forgiveness, we want them paid. So I have not explored the prospect of moving to a private lender very much.

    1. Hi Jeremy! I’m going to reach out to you directly by e-mail, but we were super happy refinancing with CommonBond (even though I work in public service and probably could have gotten PSLF). We were similarly situated with 7.9% grad plus loans and we were able to cut out rates in half!

    2. If you are able to pay it off in 3-5 year I definitely would. I would definitely refinance if you plan on paying it off within that timeframe though. I know Dave Ramsey loves the snowball effect and tells people don’t refinance and treat your debt like it’s an emergency. That’s fine if you are able to live on fumes for 6 to 8 months, but if you have to live on fumes for 3-5 years, that just isn’t practical or realistic

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