Hi Money Minder,
I’m about to dive into the world of student loan payments and I need some advice. I’ve got 85K USD coming in annually before taxes, and I owe about 60K USD in student loans with interest rates ranging from 4% to 7%. Should I go for the minimum monthly payments on my student loans and focus on saving for retirement, or should I prioritize paying off my loans first? And speaking of retirement, how much should I be putting away? My company matches 100% at 3%, then 50% for an extra 3-5% of our choice. I’m not sure how much of my salary I should allocate towards retirement. Should I put more into my 401(K) or my Roth IRA, and how should I split it between the two?
Any help would be greatly appreciated!
Farewell from the Seeker of Financial Wisdom,
Response from THE MONEY MINDER:
Hello There,
Hi there!
First of all, congratulations on landing a job that pays you 85K a year – that’s a significant achievement! As for your concerns about student loans and retirement funds, it’s great that you’re already planning ahead. Given your situation, my suggestion would be to strike a balance between paying off your student loans and saving for retirement.
Since your company offers a generous matching program, it makes sense to take full advantage of it. By contributing at least 3% to your 401(K) to maximize the full employer match, you’re essentially getting free money towards your retirement savings. After that, consider contributing an additional 3-5% to take advantage of the partial employer match. This way, you’re setting yourself up for a solid foundation of retirement savings without sacrificing too much from your paycheck.
When it comes to student loans, while it may be tempting to focus solely on retirement savings, it’s essential to make regular payments to avoid accumulating too much interest over time. I would recommend exploring the different repayment plans available for student loans and choosing one that aligns with your financial goals. With varying interest rates from 4%-7%, you may want to prioritize paying off loans with higher interest rates first to minimize the overall interest paid in the long run.
As for dividing between a 401(K) and a Roth IRA, both are valuable retirement saving vehicles. Since you already have a 401(K) with an employer match, you may also want to consider opening a Roth IRA to diversify your retirement savings and enjoy potential tax benefits in the future. It’s advisable to consult with a financial advisor to determine the best allocation of funds based on your individual financial situation.
In summary, my recommendation would be to focus on maximizing your employer match in the 401(K) while making regular payments towards your student loans. By striking a balance between retirement savings and debt repayment, you’ll set yourself on the right path towards financial security.
Best of luck with your financial journey!
Farewell from THE MONEY MINDER.
