Is It Better To Save Up for Retirement or Pay Off Debt? Financial Pros Weigh In

Every month, there are countless bills and expenses to plan for and take care of. Looking at finances in the short term is complicated enough, but what about your long-term strategy? Many are left wondering what to tackle first: pay off debt, or save for retirement?

Deciding whether you should save or go ahead and erase debt is confusing for many, to say the least. And the question is a common one, says one financial expert.

"In a lot of ways, we are living through what feels like a financial apocalypse," says Berna Anat, host and producer of the Money Please podcast and Secret Deodorant financial expert. "We're crawling our way out of the early years of the pandemic, employment and inflation are on a roller coaster, costs of living are only rocketing upwards and we get near constant reminders that the planet’s dying. Life is more expensive, our wages are not keeping up and our future looks more and more unstable by the second."

It's causing people to make hard decisions. Anat is concerned they're making them alone.

"Because of how shame-y so much financial education is, folks who feel like they have to make a decision between retirement and debt feel like a failure either way, and that’s just not true," Anat says. "It’s a privilege to be able to cover both financial bases—a privilege many of us can’t afford."

But do you have to choose between saving for retirement and paying off debt? It's a complicated answer. But Anat can say definitively: You shouldn't be afraid to ask and get advice from an expert.

"You're considering two points of your most basic financial safety and security: Do I save my financial butt today, or do I cover my financial butt for tomorrow?" Anat says.

Anat and another financial pro offer advice worth its weight in gold.

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Is It Better To Pay Off Debt or Save for Retirement?

Anat says it depends—and she knows that response will likely elicit big sighs.

"[It’s] the world’s most annoying—yet true—answer, which I hate to give as much as I hate when my therapist says it to me," Anat says. "It’s a matter of what type of debt you hold and your own personal preference."

Another financial pro agrees with Anat.

"It depends on what kind of debt you are referring to," explains Krisstin Petersmarck, an investment advisor representative at Bridgeriver Advisors in Bloomfield Hills, Michigan. "If you have high-interest loans, like credit card debt, it is a good idea to pay off the debt over saving for retirement. With that said, low-interest loans, like a home mortgage, do not need to be paid off, and someone should be allocating savings to retirement instead."

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How To Set Yourself Up for Success in Retirement

Giving sweeping advice to a broad audience on this topic is a challenge. But Petersmarck has some hard-and-fast tips for people nearing retirement with significant debt.

"You need to address it as soon as possible," Petersmarck says.

  1. Take notes. Grab a pen and paper, and block off some time to dig into your loans' details and write them in writing. "First, write down the amounts, interest rates and terms of all debts."

  2. Prioritize what to pay off first. Petersmarck recommends starting with the debts with the highest interest rates and smallest balances.

  3. Create a budget. "This can be done by looking at your past expenses and seeing where you can save money that can ultimately go towards debt payments," Petersmarck says.

  4. Stay motivated by goal-setting. Set a goal, such as putting X amount toward your debt monthly. "Write it down and review it daily to ensure you’re still on track," Petersmarck says ."It takes discipline to pay off debt, but it will be worth not having that stress during your retirement years."

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Questions To Ask Yourself When Deciding Whether To Save or Pay Off Debt

Money is so personal, and Anat says answering some questions, particularly with the help of a financial advisor, can help you create a customized path to financial success that allows you to prepare for the immediate and long-term future.

1. Do you have a liquid/cash emergency fund?

If a true emergency happens—a natural disaster, for instance—debt and retirement can both go on the back burner for a beat.

"That impound fee on the car you take to work, or that eviction notice right after you get laid off? Those types of emergencies can’t wait, and going further into debt to cover them can become a nightmare," Anat says. "If you’ve got extra, consistent cash flow, flow it into an emergency savings first."

2. Are you getting that free-free?

If you're fortunate enough to have an employer matching 401K or other retirement plan contributions, Anat suggests keeping your foot squarely on the gas there.

"If I had a matching-contributions employer, I’d stay invested in retirement as much as possible—your savings is unlocking someone else’s free money," says Anat. "[You] can’t do that with debt. Keep your foot on that pedal."

3. What kind of debt do you have?

As Petersmarck said, assessing your interest rates and debts is important.

"In general, I’d want folks to get rid of anything double-digit—personal loans and credit cards are the succubus of the financial world because they tend to have the highest interest rates," Anat says. "They dig you into debt the furthest."

Suppose you have a stable job and double-digit debt. In that case, Anat offers this advice: "If I could map out a plan where I could pause retirement savings, aggressively knock out my 15% interest credit card debt in a few months and then confidently get back on the retirement track, I’d do that," Anat says.

4. Is it smarter to stay invested?

Here comes the phrase again.

"It depends," Anat said, adding she knows she's "being annoying." "Generally, an OK amount is whatever monthly payment that doesn’t threaten your livelihood, and everyone’s projected retirement livelihood is so different."

A financial advisor is clutch in these situations.

"They’ll take in the full picture of your financial life and then talk you through a few factors," says Anat.

These factors may include:

  • Do you have retirement savings?

  • How much will it pay out in your retired years?

  • How much do you expect to spend each month in retirement, pretending we can control the future?

  • Is there room in that budget to cover monthly payments towards debt while keeping you healthy and comfortable?

"A reminder: money is incredibly emotional and personal," Anat says. But don't be shy about asking questions, speaking up about concerns and making your goals known so you can get the best advice from a pro.


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