Save for Retirement or Pay Down Student Loans: Where Should You Focus?

Money talks. And student debt proves you’ve made a massive investment in your career. While most people want to pay student loans off as quickly as possible, it can actually be smart to take a little longer to do so and start saving for retirement sooner.

Sure, retirement isn’t a trendy topic at happy hour. But concerns over investing in your future have a way of creeping up on you. In fact, respondents to a nationwide May 2016 survey by Bankrate indicate that not saving enough for retirement is a major financial regret.

The good news? Paying down your student loans while contributing towards your retirement (e.g. cruising the Mediterranean) is not only possible, but also very doable with the right strategy and just a little bit of patience.

Always make your minimum student loan payments

When you have outstanding student loans, your first financial obligation is to make the minimum payments. If you don’t, you risk default, which could harm your credit score and, worse, lead to higher monthly payments and higher interest rates.

Automatic payments are the best way to ensure you never miss a due date. Autopay can save you money too, lowering your interest rate by .25% with SoFi and some government loan servicers.

Always take advantage of employer matching benefits

When you start a new job, you’re pummeled with decisions regarding insurance, 401(k) plans, and other benefits. Sure you get a big 401(k) information packet, but many people just scan that material or skip it altogether. Some advice: don’t do that. You could miss out on a big opportunity—namely employer-matching benefits.

Many 401(k) plans include a match on employee contributions worth 3%-6% of your annual salary. If you earn $75,000 per year, that’s $2,250-$4,500 in free money each year contributed to your retirement account. To get the match, you do have to contribute to the plan yourself. Make sure you don’t leave that money on the table.

Make extra loan payments when possible

If you have leftover income each month that’s not used for living expenses, loan payment minimums, or to supplement your emergency fund, you should pay more toward your student loans to lower the balance.

For example, if you get a tax refund or a bonus at work, put it toward an extra student loan payment. It’s money you don’t rely on for your monthly budget, so use it as a tool to get out of debt as fast as possible.

Making extra payments will save you a little bit in interest every month for the entire life of the loan. To determine exactly how much you would save by paying your loans off early, use this pre-payment calculator.

Step up retirement savings

If you keep true to your budget, make student loan payments responsibly, and still have income to set aside at the end of each month—then funnel those extra dollars into retirement savings.

For most young professionals, a Roth IRA—a retirement account that allows you to set aside after-tax income for tax-free withdrawal in retirement—is a great investment option once you are taking advantage of the full 401(k) employer match. While the name is stodgy, the impact on your bank account is anything but. Roth IRA investments are typically best for professionals in their 20s, 30s, and 40s due to how they are taxed. For more information on which IRA account is right for you, consult our IRA calculator.

For a more complex retirement savings system aimed at investors with retirement dates farther into the horizon, consider the following in terms of priority:

– Invest in your employer 401(k) until reaching full employer match.

– Put money in a Roth IRA until reaching the annual maximum or income limit. The 2016 limit is $5,500 for individuals under age 50.

– Drop more into an employer 401(k) up to the annual maximum, which is $18,000 for 2016.

– Deposit additional dollars into a regular investment account through your favorite brokerage or through SoFi wealth management, which also offers IRAs.

 Get on track today

Retirement might seem a long way off, but every year counts when your goal is financial comfort. It’s okay to start small, especially while keeping your loan debt in check. By taking practical and responsible steps today to put your student loans behind you, you’ll be debt-free in no time, and on track for that dream retirement.