Should I save for retirement or pay down my student loans faster?

Jackie asks: I am 26 years old. I own a condo which I am in the process of refinancing for a 15 year loan. My salary is $68K per year. I have just started working full-time in August since finishing grad school. I have 70K of student loan debt. I have no retirement savings what so ever. I do have an emergency savings with four months of expenses. Should I be saving for retirement or paying down my school loans? If I should be doing both, where should more money be going?

Thanks for your question. Congrats on going to a 15-year mortgage; that’s a big step in the right direction that I think most people are afraid to take!

As for saving for retirement or paying down student loans: Unless you have private student loans at interest rates of more than 10 percent, I’d definitely get your retirement savings in gear.

If your employer offers a 401(k) and matches your contributions, at least contribute the maximum they will match (usually six percent of your income). Even better, contribute an even ten percent.

In addition, (or if your employer doesn’t have a retirement benefit), I would try to contribute the maximum $5,000 per year to a Roth IRA. You can open an IRA online fairly easily, and most places don’t have minimum balances on IRA accounts.

Typically student loans have fairly modest interest rates and your money will work harder for you invested in the markets over 30 or 40 years than it will paying back a six or seven percent loan ahead of schedule. (Plus some federal student loan interest is tax-deductible). Finally, it’s always a good idea to get in the habit of saving for retirement as early as possible so it becomes a lifelong habit.

Good Luck!

David @MoneyUnder30