Saving for Retirement While Paying Down Debt (Part 1)


I know how hard it is to make an attempt at saving for retirement when you have a massive amount of debt hanging over your head. Most Millennials, like myself, cannot stand it when I'm told, "you kids don't know what it's like to start out in the world with nothing." To which I say, "Believe me, I would have LOVED to start out in the world with nothing instead of starting $120,000 in the red and nothing to show for it except for a piece of paper saying I have academic credibility." And it isn't as though I ended up with a bullsh*t degree (though I do hold a B.S. degree, haha) I had two majors, and two minors, and was easily able to find work in my chosen field. But it does not make paying down debt and surviving in an expensive city like New York any easier.

My peers often say that they wish they could save for retirement but just can't right now because they have so much debt hanging over their heads. I of all people know what that's like. However, if you don't start today, when will you start? When you've paid off your student loan debt in your 30s and 40s? What is the benefit of this?

The truth is, you can retire anytime after age 59 and withdraw from brokerage and IRA accounts, but will you have enough money to last you another 30-40 years on the same income you're making today? When your paychecks stop coming in, what will you do?

In this new series, I will hopefully explain to you how it is not only possible to save for retirement while paying down debt, it is INCREDIBLY important. Even if you have an employer-sponsored 401(k) - which if you read here I explain why this is a horrible idea - you still need to have a strong, structured plan in place. Stay tuned for more tips on how to save for retirement while still paying down debt.

1) OPEN A ROTH IRA AND CONTRIBUTE THE MAXIMUM AMOUNT AS EARLY IN LIFE AS POSSIBLE

Young workers often think the most important thing is to pay off student loan debt as quickly as possible to get it off their plates and avoid wasting a ton of money over time. While I agree this is important to do, it is equally if not more import to begin contributing to retirement as early as possible so you will have even more at retirement.

In an effort to pay student loans off quicker, many Millennials often pay double the minimum payment in an effort to pay the loan off in half the time. Sometimes there are penalties for paying a loan off early so you need to be careful here.

I recommend all those in their 20s or even late teens to have a Roth IRA - this means the contributions have already been taxed so when you go to make a withdrawal later in life you will not be taxed again. Since this is such a good deal, the government puts a cap on how much money you can contribute to a Roth IRA in a tax year, especially for those who are younger than age 40.

The cap is roughly $5,000 per year, or $417 per month, or $192 per bi-weekly paycheck. What does this mean for you? If you are contributing a ton of money towards your student loans, consider instead pushing that extra money into your Roth IRA.

Just on a cash contribution, you will have contributed $100,000 between age 20 and 40. This does not factor in the return of a normal retirement fund, which typically can give 30%+ annual returns per year! That's a LOT of bread for you in the future, but if you give it all to student loan debt today, what will happen to your savings?

Any retirement questions you'd like to share? Send me a message!

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