Save for Retirement or Pay Student Loans? What’s Best for Your Financial Future?
December 19, 2013

When you’ve got student loans, that may be the only financial future you’re focused on – getting them paid and out of your life. But you also need to think long term – about your retirement – even if that’s 30, 40 or even 50 years down the road. Even if paying your student loans is taking a chunk out of your wages, that’s still no reason not to set a little bit aside for your future. Consider this…

#1 Don’t Say No to Matching Money

If your company offers to match contributions to your 401(k), you’re foolish not to take them up on the offer. That’s free money into your retirement fund. The one caveat you need to consider is the vesting period. The money that you personally put into your 401(k) is yours but some companies set a vesting schedule, which means the match will be earned over time (25% after one year, 50% after two, etc.) But for those companies that vest immediately, it’s a no-brainer.

To maximize the benefit without busting your budget, set your limit at the match. For instance, if they offer a 50% match on up to 6% of your wages, invest 6% to get the full match. If you make $900 per week, you would set aside $54 into your account and the company would kick in $26. By year’s end, you’ll have about $4,200. After 25 years of investing this small amount plus the match, you’ll have more than $153,000.

#2 A Little Money Now Can Be a Lot of Money Later

While you may see retirement as a millennium away, you’d be surprised at how fast the time goes by. If you start saving now, you’ll be oh-so-much better off when it does come time to think about your golden years. The earlier you start saving, the more power that money will have over time. If you set aside $4,000 per year starting in your 20s, by the time you’re 62, you’ll be a millionaire if you can achieve an average 8% interest rate.

Comparison of savings over different time periods

The effect of time on savings is immense.
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If you wait until your 30’s to start saving, you’ll have to more than double your investment in your retirement to get the million. You’ll need to put in almost $9,000 each year for the same effect. And if you push it into your 40s – which is better than never – you’d need to put a huge chunk of your paycheck into retirement to give yourself the safety net that a retirement nest egg represents.

#3 Don’t Make Excuses to Get Started

Of course you need to take care of your student loans, but that’s short term – you also need to think long term. Are you eligible for any kind of discharge program for government service, nursing or teaching? If so, lower your payments as much as you can with IBR to max out your forgiveness and invest the difference into your retirement account.

If you qualify for IBR – even if you don’t have PSLF or other forgiveness options, the balance will be forgiven in 25 years (20 with PAYE) although it will be taxable. Consult an accountant or investor to see if the tax impact of forgiveness is less than the effect of being able to sock away more into your retirement account. Planning for your financial future can be complicated, but if your job offers a 401(k), the broker will often offer investment advice for your specific scenario or you can consult a professional service.

Sign up for’s free student loan management tool to track and optimize your debt. Just as you can see your savings increase when you track your 401(k), you can watch your loan balance decline as you pay down your debt on our easy to use dashboard. You can see all loans – public and private – in one simple snapshot so you always know where you stand. And be sure to read our blog and check out our Student Loan Help Center for tons of advice!