'I can afford to pay up to $2500 per month towards my student loans, but should I invest more in Roth accounts instead?' Student Loan Repayments: Balancing debt repayment with retirement savings - what's the best approach?

Hi Money Minder,

I’ve got $85k in Federal student loans at 7.3% interest. My current income is $90k, but thanks to my job in actuarial, I’m looking at a 12+% increase each year as I pass exams (according to my company’s program and my progress so far). I can comfortably put $2500 towards my loans each month without jeopardizing our retirement savings, thanks to sharing bills with my husband.

But here’s my question – should I focus on stashing more in Roth accounts now and tackle the loans later when my salary and inflation have made a dent in them? Given my career path, is this a smarter move in the long run?

Cheers,

Financially Savvy

Response from THE MONEY MINDER:
Hello There,

Congratulations on being on a promising career path with the potential for growth in the upcoming years. It’s great that you are considering your financial situation so thoughtfully and looking to make the best choices for your future.

Given your current scenario of having $85k in Federal loans at an annual effective rate of 7.3% and a salary of $90k, it makes sense to prioritize paying off your student loans efficiently. With the ability to contribute up to $2500 per month towards your loans while still being able to split bills with your husband, you have a solid strategy in place.

Considering your expected salary increase of 12+% per year as you progress in your actuarial career, it might be beneficial to strike a balance between investing in Roth accounts and paying off your student loans. It would be wise to continue making your monthly payments while also maximizing contributions to retirement accounts, especially if your employer offers matching contributions.

As your salary grows and inflation impacts the real value of your loan payments, you can adjust your strategy accordingly. You could increase your loan repayments at that point or continue investing in retirement accounts to take advantage of compounding growth.

Ultimately, the decision on how to allocate your funds between loan repayment and investments should be based on your individual financial goals and risk tolerance. It’s essential to maintain a diversified approach that considers both short-term obligations and long-term financial security.

Best of luck as you navigate this financial journey, and remember to reassess your plan periodically to ensure it aligns with your evolving circumstances.

Farewell from THE MONEY MINDER.