Should You Pay off Student Loans Before Saving For Retirement?

[ZDSpark]

Hi, I am a 25 year old recent college graduate who is currently paying off students loans. As of now I owe about $10,000 which I believe I can pay off in about 1-2 years. In addition to paying off the loans, I would like to open a retirement savings plan while I'm in my twenties. I know that the earlier you start saving for retirement the better, but would it make any sense for me to open a retirement plan while I'm actively paying off debt? It seems like I have two options:

1. Pay off all my loans (1-2 years) then delve into a savings plan at that time.

or

2: Open a savings plan now while paying off debt (which would lengthen my loan repayments, possibly to 3-5 years).

From what I see, it just seems like it would be simpler to pay off the debt and then open a savings plan because paying down debt while saving for retirement seems counter-intuitive, but since I'm new to investing, maybe there's something I'm missing?

Also, as of now, my employer doesn't offer any kind of "match" or "free money" for an investment plan, so I'm not missing out on anything there.

Thanks!

[Jonathan K]

Well, we used Dave Ramsey's 7 Baby Steps. If your employer doesn't match or offer free money for an investment plan I would recommend getting out of debt as quickly as possible! And don't open a savings account. Consider instead a Money Market Account or Savings Bonds once you pay off your debt.

But before you do that start an emergency fund to pay for any emergencies you may have (car repairs, doctor visits, etc.). Remember credit cards are not for emergencies. They are for bonuses such as free mileage or cash back on purchases you would normally make anyway.

We have done steps 1, 2, 3, 6, and 7. We don't own a home but we are 100% debt free. Our car is paid off, school debt is 0, and we pay our credit cards monthly to a balance of 0. We are currently beginning to save for kids college. We save about 12% pre-tax and another 10-30% of our net income monthly as the budget allows. We also are able to give a lot more to God's work and to people in need since we owe nothing to anyone.

Here's the link for Dave Ramsye's Baby Steps & what they are.

Dave Ramsey's "Baby Steps" Plan

1. Make minimum payments on all your bills. Squeeze your budget until you've accumulated $1,000 cash. This is your beginner Emergency Fund.

2. Pay off your debts in order of smallest balance to largest. "Snowball" the payments as you go.

3. Create a full-fledged Emergency Fund containing 3 to 6 months' worth of expenses.

4. Direct 15% of your annual pre-tax income into your retirement plans. Utilize tax-advantaged accounts such as 401ks and Roth IRAs, if eligible.

5. Take care of college funding. Fully fund Educational Savings Accounts and/or utilize 529 plans.

6. Become financially "ultrafit" and 100% debt-free: Pay off your home early.

7. Get to the point where your money works harder than you do: Build wealth (mutual funds, real estate, etc.), have fun, and give!

Hope this helps!

[4jacks]

I would only open the retirement savings account if it were matched by your employer. That is free money, you can't turn that down! Otherwise just concentrate on paying off the debt.