Should people save for retirement or pay off loans?
People should do both at the same time: always start saving for retirement as well as pay on debt. Some leading personal finance experts focus completely on debt, but I believe that saving for retirement is very valuable to have the habit as early as possible even if the amount is small. The fact is that you will always pay your debts because there is a reminder each month asking for payment and if you do not pay someone will even give you a call. However, with retirement saving there is no request to send payment each month and nobody calls if you forget to send it. Essentially, it is crucial to view saving for retirement just like a bill because it really is. It is paying a future bill when you no longer have a job or income producing options in life. Pay both like they are bills and this will curb some of your spending habits while at the same time preparing for the future.
Another downside to paying off all your debts first is that you will always be tempted to take on more debt to replace what you paid off. Companies are always doing their best to hook you with another deal. If you already have a debt to income ratio that is too high to qualify, then you may not qualify which will possibly keep your spending in check. At the same time you are paying your future bills by saving for retirement. If your employer matches some of your retirement contribution, then you are really better off with doubling your savings right off the start.
The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.