student loan vs retirement savings

[michgc]

No one has asked this question. How much student loan do you have? How long until you can pay it off? I wouldn't want to soley put money towards your loan if it's going to take 5+ years to pay off while not contributing anything toward retirement. While that option may be good, the problem with that scenario is that you will now be 5 years behind in contributing toward retirement, and you cannot make up for previous years that you did not contribute.

For example, you can contribute $5500 per year toward an IRA for retirement. If you make that contribution in 2013-2017, you would have $27,500. If you put that same money toward debt instead you have $0 in retirement after 5 years and you no longer have the option of putting that $27,500 away. I wouldn't want to lose ALL that opportunity if the debt repayment is going to take a long time.

So depending on how much of a loan you have and how much money you are talking about paying it off, I wouldn't immediately say to pay off the loan. If it's one year, pay off the loan. If it's 5 years or more, I'd probably do both simultaneously. And I'd put the retirement money into a Roth IRA instead of a 401(k) since you are not getting a match. And with the Roth, you'd have access to the money in case of an emergency.

ETA: I just realized that I said almost the same thing as Lacerta. Great minds and all that.

[shaner23]

Originally Posted by michgc

No one has asked this question. How much student loan do you have? How long until you can pay it off? I wouldn't want to soley put money towards your loan if it's going to take 5+ years to pay off while not contributing anything toward retirement. While that option may be good, the problem with that scenario is that you will now be 5 years behind in contributing toward retirement, and you cannot make up for previous years that you did not contribute.

For example, you can contribute $5500 per year toward an IRA for retirement. If you make that contribution in 2013-2017, you would have $27,500. If you put that same money toward debt instead you have $0 in retirement after 5 years and you no longer have the option of putting that $27,500 away. I wouldn't want to lose ALL that opportunity if the debt repayment is going to take a long time.

So depending on how much of a loan you have and how much money you are talking about paying it off, I wouldn't immediately say to pay off the loan. If it's one year, pay off the loan. If it's 5 years or more, I'd probably do both simultaneously. And I'd put the retirement money into a Roth IRA instead of a 401(k) since you are not getting a match. And with the Roth, you'd have access to the money in case of an emergency.

ETA: I just realized that I said almost the same thing as Lacerta. Great minds and all that.

I agree with this to a certain extent, but for majority of people, they won't be able to max out their retirement contributions. It is possible for OP to max out the IRA contributions at $5500 per year, but 401k contributions max out at $17.5k. Not contributing while paying off debt might be seen as some as lost opportunity. But I see it as not being in the position to take advantage of the opportunity. Paying off your debt puts you in the position.

If OP works hard to pay off the student loans, I feel confident that she/he will more than make up for the lost opportunity in retirement contributions afterwards.

[anniebobannie]

Originally Posted by michgc

No one has asked this question. How much student loan do you have?

The loan is 17K.


Thank you everyone for your input! I appreciate it!

[FrmlyBklyn]

Originally Posted by anniebobannie

The loan is 17K.


Thank you everyone for your input! I appreciate it!

Pay off the loan, it's a guaranteed return of 5.88% if you do. Know any place today with a guaranteed return? The stock market has the potential to return it and more, but there is no guarantee. Student loans are not dischargeable in bankruptcy - pay it off and sleep well at night.