Pay Off Debt or Save For Retirement?

Welcome to another edition of “Erin uses her blog for life advice”! Y’all thought you were reading a personal finance blog, didn’t you? When in actuality, RDS is basically a place where I can talk about myself and ask questions about things relevant to my life. Aren’t I sneaky?

Jim Carrey gif

Anyways, last week I had a wonderful Twitter chat with @vanessapage, @debtblag, & @Liquid_Independ (I would tell you to follow them, but you probably already are. If not, FOLLOW THEM – they are all awesome and you don’t deserve their friendship!).

I asked the Internet via Twitter about retirement accounts because I was curious to know when people were opening 401(k)s or IRAs (or RRSPs or TFSAs or any other combination of letters and/or numbers that mean “retirement savings”). I personally opened my account in January 2012 (age 22) when I got my first “real” job. I have a company match (albeit small) and free money is my homeboy. I’m not overly concerned with opening a Roth IRA for myself until I am out of debt.

However, my husband does not have a retirement account. He has not yet had a position that offered him a 401(k) match and we haven’t opened an IRA for him. This makes me nervous as he will be 27 in September. I know, I know. Normal people generally don’t care about opening retirement accounts in their twenties. But I do!

Why? Come here, I have a secret. Come closer. Closer. Back away a little, I’m married. Okay. I don’t know if you know this, but time does crazy things to money. It like multiplies it by a zillion. For real, it’s some David Copperfield shit. Visit a blog with actual substance to see how it works – LIKE THIS ONE that just happens to be written by one of my favorite people on the Interweb.

Anyways, the dilemma is: do we open a Roth IRA for him now while still in a mountain of debt in order to allow time to do its thing? Or do we wait until the debt is gone even though we have a few years to go? Or, per my debt repayment plan, should we open one once we’ve gotten rid of just the highest interest debt (still a lot of time to go)?


Steve’s age: will be 27 at the end of September (*tears up* They just grow up so damn fast!)

Highest interest rate on debt: 6.55% on the majority of the student loans (If it were 3-4%, we would totally go for the Roth)

Years till debt is gone: 3 to 4 years aggressively, forever and a half at the minimum payments

Erin’s feelings and emotions: Wants Steve to save for retirement and wants to be debt free *pouts like a small child*



– Opened retirement account at 20

– Possibly a few grand in debt when she opened her account

– Suggested I write a post about it (ta-da!)

– Says “6.55%? Pay it off!”


– Opened retirement account at 21, no employer match

– Had student loan and mortgage debt @ 5.5% and 3.4% interest, respectively

– Says “Personally I would also pay off the debt 1st 😀 6.55% after tax investment return is hard.”


– Opened retirement account at 25

– Has a large amount of debt, put uses the Roth because it can act as an emergency fund

– Says “(1) This is the cheapest you’ll ever get into a Roth assuming you’ll be in a higher bracket later in life. (2) You can’t go back and put Roth in for previous years.”

Aren’t they awesome? Thanks for the input, guys!


Steve may just have to suck it up and eat cat food. Thankfully, he’s not a picky eater.

This is Steve's reaction to practically all my jokes. I'm hilarious and he's jealous!

This is Steve’s reaction to practically all my jokes. I’m hilarious and he’s jealous!


What do you think, dear readers? Roth while in debt – good or bad idea? Also, if you want to tell me what you did that would be great! Personal experience is way more fun than whatever the numbers say. <– And this is why you should never, ever, ever take my advice on anything.

[Images from Buzzfeed/BuzzFeed]


  1. I love Jim Carrey! I just turned 28 and have never had full-time work or a career that offered anything having to do with retirement (hooray for a worthless degree). I also have MASSIVE debt, no savings, so obviously nothing for retirement. I have a hard time saving when I have so much debt and I’m banking on death before I reach retirement age. It’s scary and frustrating.

    • Oh man, that’s rough :(. May I ask what your degree is in? I think I’ve probably read about it before on your blog but I can’t remember.

      Have you sat down and looked at the numbers to come up with a possible debt free date? Maybe that would help it seem more realistic if you could attach a date (even a long time away) to it. And I hope you can retire before death! You are still so young!

      • I have a BFA in Media Arts & Animation. My student loan debt killed my passion for art. Going to a for-profit school for art, for a worthless degree was the biggest mistake of my life and I beat myself up about it. I didn’t draw for nearly two years and experienced anxiety when I tried…still working on regaining my passion. There are basically no job prospects in my field that aren’t contract/freelance and not having done much on the creative side for two years has left me lacking skills I once had. I can’t find any kind of work, even part-time minimum wage jobs because I have this BFA. The last job I had before I moved to the east coast I got because I lied about completing my BFA.
        It’s hard to come up with a date when you’re unemployed and don’t have steady side income. Unless that changes, I’m looking at 23 more years of Income Based Repayment on my federal loans and I’ll probably owe income taxes on the forgiven amount. If I pay what Sallie Mae expects of me on my private loans, I’ve got 22 more years of payments. So I’m looking at age 50 payoff, when I can start saving for retirement?

  2. I’m going to be 33 this year (you people make me feel old!). I opened my first retirement account when I was 24 when I got my first big boy job. Before that time I was just investing in a taxable account (been doing that since I was around 13 or so with the help of my dad and grandpa). So I have been investing for retirement of sorts for close to 20 years now (ugh that makes me feel even older).

    If you had asked me this question in 2008 I would have told you to go “all in” in the market because things were on sale and the returns since the bottom have been great. Now I would probably concentrate more on debt payment because I am not convinced you can beat 6.55% in the near term future. Of course I could be wrong and it wouldn’t be the first time nor will it be the last.

    As far as the choice between a ROTH and a traditional IRA, I would probably suggest going the traditional route since he doesn’t have an employer sponosered plan. Odds are you are not going to be in a higher tax bracket when you retire so the ROTH really isn’t that big of a deal. Of course you may hate RMDs like I do, so doing a ROTH would be a good choice. Not sure any of that helped or made any sense, but I have already hit post comment so it is too late

    • 33 is most definitely not old! And holy hell, that’s freaking awesome! You have an awesome dad & grandpa :).

      Can I ask why a traditional makes more sense because he doesn’t have an employer-sponsored plan? It seems like everyone always suggests ROTHs for youngins, so I’m curious. Also curious because I have a ROTH 401(k). Thanks for the comment, Brian! You are always helpful.

      • It is not that the ROTH is a bad idea; it is just that you probably aren’t going to be in a higher tax bracket when you retire and not get a true tax benefit. If you put it in a traditional IRA now, you get to deduct it on line 32 (I think) on the 1040, so it will lower your AGI. Since he doesn’t have the ability to adjust his taxable income from an employer sponsored plan, he can do it this way.
        But like I said, there really is nothing wrong with a ROTH and it does have its own set of advantages like no required minimum distributions and you can withdrawal you contributions tax free (after a holding period). In the end, it is the saving and investing that is really the key. Remember, lots of people’s parents (and grandparents) saved for retirement just using a taxable account and they turned out ok.

        • Yes, it is line 32. I’m kinda hoping we are in a higher bracket down the road. We don’t make huge amounts! You know what? I should ask my grandparents what they did (not about ROTHs, just retirement savings in general). I never even thought to ask someone who is actually retired.

          • I totally get what Brian is saying about the deduction on your return, BUT let me add a couple of things.

            1. Do you get a return already? If so the deduction won’t make that big of a difference.

            2. Most people HOPE to be in a better position down the road than they are in now, so remember that a ROTH is tax-free on everything that is earns. In other words, when you are 65 or 70 you can take the cash out without worrying about taxes. PLUS, should you need absolute, total emergency cash, you can remove what you PUT into the Roth after 5 years without penalty. There are stipulations of course.

            Shoot me a tweet or visit my blog if you need more help with this. I would love to answer any questions.

          • I have to respectfully disagree with Brian.

            At a young age, Roth makes sense. If your husband is 32 (I don’t even REMEMBER when I was 32) he has 30-35 years of Compound Interest on his side. If he can put in $5k per year and get 7% interest, his account would have almost 1/2 million after 30 years!

            Shameless plug. Check out my resources page that has a Compound Interest Calculator. (Make a copy for yourself if you’d like). I’ve also got a book coming out in a few weeks. The Theme is Retirement for All Ages. Ping me here if you want to be notified when it comes out.

  3. Ditto Brian about Roth v. Traditional IRA. Unless you 100% convinced you’ll be in a higher tax bracket at retirement . . . traditional makes more sense in this situation. And I’m not sure these days that anyone should be all that convinced they’ll be in a higher tax bracket after retirement. Of course, I’m also not sure these days that I’ll ever retire. And I definitely don’t expect to retire at age 65. We live too many years past 65 as a society these days and retirement is a made up concept only dating back to about WW2 anyway. Enough blathering on my part. I’m off to find a cup of coffee (thanks for my morning read!)

    • Thanks for the input, although I am confused as to why the Roth is a bad idea. It feels like everyone is always talking about Roth IRAs. Enlighten me? I do HOPE we will be in a higher tax bracket, but like anything else in life there is no way to be 100% sure.

      You’re welcome, Tracy! I’m shocked you could form a coherent response without morning coffee. Mine would have been like “Oh my god, do what you want! There are worse things in life — like lack of caffeine! Go play in traffic, you whiny redhead.” Also, I’m not very nice without coffee.

      • Basically the rule of thumb I’ve always been taught is that if you expect to be in a higher tax bracket at retirement go for Roth. If you think you’ll be in the same or lower tax bracket at retirement, you want traditional. Having had my morning cup of coffee (and my lunchtime cup . . .) I’m more optimistic today and say OF COURSE you will be in a higher tax bracket at retirement and should TOTALLY invest in Roth 😉
        As for your bigger question, my opinion is to focus mostly on student debt since you already have a retirement account. That is biased by the fact that my husband’s student loan debt is the major reason I have fun reading PF blogs. I have to find the humor in the situation and I look forward to the day that debt is gone. We invest very minimally in retirement at this point, only up to the employer match, because we throw every penny possible to Sallie Mae. And there is a light at the end of the tunnel . . .

        • I’m assuming we will be in a higher tax bracket. Plus, our earnings will then be tax free :). Which is why I have a Roth 401(k).

          I am afraid of losing out on these prime investing years (our 20s). I think I am going to adopt a more balanced method where I do a little (or a lot) of both. Thanks, Tracy!

  4. I don’t really understand the rules of a Roth so I’m not sure if it is in your best interest to rate until you’re in a higher income tax bracket (in Canada you can contribute to your RRSP but claim the deductions in a future year when you earn more money).

    I started saving for retirement at 25 while I still had all my student loan debt. I dumped $2,500 in then didn’t touch it for more than 2 years — mostly because 10 months after I started the account I got a job where my employer has a mandatory retirement plan, so I was definitely still saving for my golden years. In January of this year I started contributing to my own retirement accounts again (consequently putting away something stupid like $800/mo for when I’m old and gray). As you know, I still have debt, so I don’t really know why I’m doing this. Feeling financially secure is really a psychological beast for me — I just don’t feel safe if there’s not money in the bank! But my debt is also only at 3%, and I’m still making payments on it, so the race against debt accumulation and compounding interest has been a tight one.
    Now that I’ve ended up with more saved for retirement than I ever owed in student loans, I stopped and looked at myself and said, Bridget WTF. In other words, I think I went overboard. Don’t do what I did.

    That said, there are worse mistakes you can make than saving too much.

    I would encourage to take a 50-50 approach. You want both so do both. Less aggressive debt repayments to fit some savings in. Both are really important so I wouldn’t choose one over the other.

    • You’ve only been saving for a few years and you already have more than you owed in student loans? That’s incredible! You started out with a decent chunk of loans too. Future you is going to be living the high life :).

      I think if I was down to 3% interest on my debt, it wouldn’t even be a question. 6.55% is just too close for comfort. I MAY be able to get a better return than that, but it is certainly not guaranteed. I think I’m going to consider a 50-50 approach. I’m so “all-or-nothing” that I never even consider a healthy balance. Thanks, Bridget!

  5. I vote that you shouldn’t consider them mutually exclusive. Open a Roth and pay down his student loan debt at the same time. Sure it might be slower progress, but that’s what I would do.
    My Roth was opened when I was 22, and I’ve put as much as I could legally put in each year since then (~$33K total) and now that I’m 30, even with all this recession and market crash stuff, there’s $63K in the account. If I keep doing this through the time I’m 35 and then stop completely no deposits ever again, there will be half a million in there when I’m 60. Hard to argue with getting those additional years to compound in there early, even if its a stretch.

    • Maybe that’s what we need to do Mrs. PoP — STRETCH. If we make this a priority and also make debt payment a priority, it will force us to find ways to cut back and earn more. Thanks for the comment, you gave me something to think about :).

    • Erin, my first suggestion would be to have an emergency savings account. That amount varies depending on your circumstances. After that, I would do what Mrs. PoP is doing, invest and pay down debt slowly. Johnny Moneyseed said it best about compound interest. It is magic.

      Do you have a debt-payoff plan? What is your system?

      • I do have somewhat of an emergency savings account. I say somewhat because I have a large chunk of money in savings for a move, so I can access that for any emergencies. Once I move (end of next month), I will be keeping a set amount in there for emergencies.

        Here is my general debt-payoff plan. As you can see, I haven’t included a debt free date because I’m not sure how my income will look when I move!

  6. I’m all or nothing too! I never consider splitting my funds, I always want to either put it ALL at debt, or ALL for travel or something.

    I just paid of my $26k in student loans, which were at 5.5%. I’m not putting anything away for savings or retirement. Now that my student loans are gone, I’m attacking my 2.9% car loan. I know that’s dumb and I should be saving for retirement, but I’m only 23, so in my mind, I have time. Once THAT’s gone (seeing the all or nothing trend yet?) I’ll focus on aggressively building my retirement accounts to where they should be, and shoring up my E-fund to around $7k.

    Since your debt freedom date is so far off, I would start putting away a little teeny something for retirement now, and then funnel the rest of your income towards debt. That way you won’t be starting at zero once you are finally debt free.

    • Glad I’m not the only extremist around here :). It sounds like you are attacking your debt like crazy, so I’m sure you will be out of it in no time and heavily funding your retirement accounts. Thanks for the input, Jordann!

  7. Thanks for the mention, Erin! 🙂

    Regarding the Roth v. traditional, I actually don’t think I’ll be taking less in distributions in retirement than I do in income now. Since Erin and her boyfriend are at the beginning of their careers, I’d be especially surprised to find that this is true for them. Not only that, for young people in particular, the flexibility that comes with a Roth should be a big deal. What if the young couple decides a few years down the road that they want to buy a house and need to dip into retirement savings to increase the down payment to avoid PMI? How about if one of them goes back to school? And RMDs? 😉 No need to get hit with penalties if you don’t have to.

    But — but! and I don’t want this to be lost amid the talk of *how* to invest — the most important thing remains, of course, to do *something* 🙂

    • No problem :).

      Doing something is definitely key. I have always liked the idea of Roths because I figured we would eventually get to a higher tax bracket. We aren’t quite ballers yet! I actually have a Roth 401(k) — soon to be rolled into a Roth IRA as I am leaving my job next week.

  8. Hi again, Erin! Anyone can open an IRA at a brokerage, mutual fund company, bank, or credit union. The employer-sponsored plan you’re thinking about is probably a 401(K). Also, how do I get my avatar in my window?

  9. Erin, your blog never fails to make me laugh, thank you!

    I was 27 when I opened my first retirement account – no company match but I got to keep the commissions off the investments I sold to myself hahaha (I was working at a financial planning firm). I made small payments while in debt but it gets you in the habit of saving, and like you said, compounding is the awesome. Even $50 a month to get started while you guys pay off debt is a good idea, it establishes the habit. Good luck!

    • Thanks, Morgaine! I’m thinking it’s a good idea to at least save something. Just have to get started — which seems to be the hard part.

  10. Ha, I like your style! Funny post!

    What a difficult question though. 6.55% is a bitch of a number. As you implied, if the number was lower, the no-brainer would be to dump it into investments. If the number was 12%, I’d say throw all extra income at the debt. You are in the middle though.

    Of course, you have to take market conditions/interest rates into account too. If you could refi your debt on Lending Club or Prosper at less than 6%, that would be a good idea. However, I took a look and you’re not going to be able to beat 6%. Forget that idea.

    If you had a company that did a match, the answer would be to contribute enough to get the full match and stop there. Again though, it doesn’t sound like this is an option.

    Can’t you write student debt off on your taxes? That may lessen the blow, maybe bringing down the rate to the 5s.

    You said you’re an extremist, but I’d probably do 50/50, especially if you can write the debt off.

    • Thanks, Mr. 1500!

      Isn’t it though? Such an irritating number! Student loan interest can be deducted up to $2,500 a year, provided we meet the income limitations — which we should. I think I am going to have to put my extremist ways aside and take a balanced approach. *pouts like the millennial brat she is*

  11. I do both! My first year, I didn’t max out my Roth IRA. The experts say you should, and I agree, but that first year out of college was also crucial in getting out of my CC debt. Even if you’re only contributing like $50 a month to a Roth, it’ll get you in the habit of saving for retirement. $50 > $0! Plus, as soon as you pay of a debt, you can roll that payment in to your Roth IRA contribution!

    Best of both worlds!

  12. I would recommend investing, even if you have debt. Debts accumulate simple interest, ie, it does not compound. When you invest, you have the magic of compound interest. I would recommend setting up a Roth IRA for him, and setting up a plan to max it out every year. It’s only about $500 a month. Once you go without $500 for a few months it gets pretty easy and you forget that the money even belonged to you.

    Betterment makes the process of investing absolutely brainless. If you’re into that kinda thing.

    • If I’m into being brainless? Haha, that is my thing quite a bit! And I bookmarked your Betterment review to look back on when I’m trying to decide :).

      Thanks for the input, JM!

  13. I would say definitely pay off the debt first and then start saving. Both if you can but more aggressive debt payment will likely pay off more.

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