Pay student loan or fund retirement?

[joseph2]

I am 43 years old and earn about $63,000. I have a mortgage but no car loan or credit card debt. I have a year's worth of income in a MM account.

I have $80,000 in student loan debt. My payment is $436.00 a month at 2.875%.

I have a 401k through my employer. My employer contribution is 11% (yes, you read that right). I currently do not contribute to the 401K. I have been employed at this job for 9 years. It's my first benefits eligible job, so I have nothing to roll over. I hope to retire in 20 years.

Two months ago, I opened a Roth IRA. It is fully funded for this year.

I recently received a promotion and raise. I am now in a position to make double payments on my student loan and possibly pay it off in 10 years (rather than 30!). I would like to know if I should try to pay off the student loan or put the extra money in my 401K or my IRA. I do not plan to change my budget or personal spending; all of the extra income will go to either debt or retirement.

[SolvingWealth]

The part about your employer contribution rate is a bit confusing. Do they match up to 11% of your income? Or do they match 11% of your contribution?

How much does your company match and what percentage do they match up to?

Most companies match 50% of your contributions up to 6% of your income. This is about the general average.

Either way, I would put money into your 401k. Your 401k will get you an instant match, which is greater than the interest you lose on your student loans. Contribute to your 401k up to your employer's maximum match, then you can start paying extra for your student loans.

To put it in a nutshell, 401k is about the absolute best investment you make. All else being equal, it beats brokerage accounts, savings accounts, and even IRA's. You should contribute first to your 401k before your IRA, simply because your IRA doesn't get a matching contribution.

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[TheWayoftheTurtle]

If your employer matches you up to 11% you absolutely have to take advantage of that. It's called free money that gains interest.

[Volatility]

You definitely have to take advantage of employer matches, tax sheltered accounts etc...

From there it's a pretty easy calculation of whether you can make more money in the long run off investment returns compared to the interest burden on the loan.

This is where you need to be very honest with your investing potential. A lot of people dramatically over estimate what kind of annual return they can get. The average is about 2.5% give or take.

So are you a reasonable competent investor? or is your money just invested with some idiot fund manager that takes management fees and doesn't beat inflation in the long run?

[micvanlen]

I personally wouldn't worry about paying of the loan. That's a decent interest rate and you can always negotiate better rates. The 401K sounds like the best bet because it's free money that will also collect interest. If there's any left over, then I would consider exchange trade funds or ETFs. I've seen a lot of fund managers think they have enough "beta" to beat ETFs, but I've rarely met one that is consistently beating ETFs. What's more is you can choose funds with low fee structures. It's the bloody fees that kill your returns.

[ygrey]

Make good use of the money to pay off your debt first and then after 10 years you can start shooting in some money to your 401(k)! This will help to keep you rocking in your retirement as well!

[Thinker25]

i dont even know what to say

[Pawnbroker]

Do NOT payoff a low interest student loan when you've got higher interest loans or high interest investments you can fund.

[ed.buyer]

Not sure but children is first.

[Christopher14]

11% is a big deal! On the other hand, that student loan interest doesn't seem to be much of a problem for now. I would rather keep it going. You can rather invest in other lucrative options.

[Boatswain2PA]

Originally Posted by joseph2

I am 43 years old and earn about $63,000. I have a mortgage but no car loan or credit card debt. I have a year's worth of income in a MM account.

I have $80,000 in student loan debt. My payment is $436.00 a month at 2.875%.

I have a 401k through my employer. My employer contribution is 11% (yes, you read that right). I currently do not contribute to the 401K. I have been employed at this job for 9 years. It's my first benefits eligible job, so I have nothing to roll over. I hope to retire in 20 years.

Two months ago, I opened a Roth IRA. It is fully funded for this year.

I recently received a promotion and raise. I am now in a position to make double payments on my student loan and possibly pay it off in 10 years (rather than 30!). I would like to know if I should try to pay off the student loan or put the extra money in my 401K or my IRA. I do not plan to change my budget or personal spending; all of the extra income will go to either debt or retirement.

So you have $80K in student loan debt that got you a job making $63K/year at 43 years old. Ouch.

Good news is you have $63K in savings, and your employer is contributing 11% to your retirement without any input from yourself.

As long as you don't have other risk factors (aging home, pregnant/sick wife/kids, car about to die, etc), then I would take $58K from savings and pay toward your student loans, with the goal of having them paid off in another 12 months. The only retirement investing I would do between now and that time is funding your ROTH (and an HSA if eligible).

Next year you could be 44 years old and debt free (??).

[aharp94]

Well it is better to see the pros and cons for either sides and then have a proper decision