Published September 10, 2020|2 min read
Managing your finances often requires prioritizing your goals. Two of the most important financial goals people create are paying off debt and saving for retirement. But which comes first? With student loan debt topping $1.5 trillion dollars, it seems smart to pay it off as soon as possible. But if you wait to start saving for retirement, you can miss out on valuable gains.
We asked 10 certified financial planners which should come first: saving for retirement or paying off debt. The verdict? Most say you should pay yourself first.
Q: Should you pay off your student loans or open an independent retirement account first?
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“It is extremely important to start saving for retirement early in your career. Over the long run, your IRA savings will provide extra flexibility and act as a buffer if you lose your job. If you do this while you have many years to save, you will benefit greatly from the compounding effect of tax-free or tax-deferred earnings. Meanwhile, your regular payments on the loan will pay it off.” — David Haas, certified financial planner at Cereus Financial Advisors
“Considering the growth potential of the IRA, it is likely better to try to max out the IRA first rather than paying off the student loan first.” — Thomas Rindahl, certified financial planner at TruWest Wealth Management Services
“Pay your minimum balance for your student loans, then fund your retirement appropriately. If you still have money left over, then you can tackle the loans. You may work for a company in the future that makes a payment toward your student loan in the future, or your current employer could decide to offer that as a benefit in the future. Either way, if your loan is paid off, that is a benefit that you won't be able to use because you were responsible and paid it off early.” — Monica Dwyer, certified financial planner
“Because the student loan must be paid off with after-tax money, I believe it should be attacked directly and aggressively until eliminated. That means clearly putting more against it than is called for by the payment plans. Its presence hinders so much for a young graduate's life options!” — Herschel Vincent Clanton, certified financial planner at Chancellor Wealth Management
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Image: Nastia Kobzarenko
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