Saving for retirement and paying off debt

Key Points

  • Saving for retirement while paying off debt is a common balancing act during your working years.
  • Four considerations can help you prioritize your actions.
  • Your Ameriprise financial advisor can help you strike the right balance to achieve your financial goals.

If you’re saving for retirement while paying off debt, you are not alone.

As our Ages, Stages and Money study1 revealed, the majority of respondents in their 30s to 60s are doing the same.

How to best prioritize both activities depends on several factors:

  • How close to retirement you are
  • The amount and types of debt you have
  • How much you’ve already saved for retirement

4 considerations to help you find the right balance

  • Your cash reserve. Unplanned, urgent expenses are inevitable. An emergency cash reserve can help you pay for them without derailing your financial goals. In general, strive to keep three to six months of living expenses in a safe, liquid cash reserve. Consider funding it to a level appropriate for your situation, before paying off debt or saving for other goals.
  • Interest rates. Generally, prioritize paying off high-interest debt ahead of saving. The average interest rate for U.S. credit cards is roughly 15%, while the five-year annualized return for the S&P 500® Index is 10.8%.2 For lower-interest debt such as a mortgage or student loan, consider whether you could reasonably earn more from investing than you would pay in loan interest.
  • Taxes. Consider potential tax advantages when deciding whether to pay off loans early. For example, if you take the standard deduction on your federal tax return, you cannot itemize a deduction for mortgage interest. As a result, you might lean toward paying down the mortgage. Always consult both your Ameriprise financial advisor and a tax professional.
  • 401(k) matching. If you’re like many Americans, you are eligible for your employer-sponsored qualified retirement plan. Gain free money by contributing at least the amount your employer will match.

Find your ideal balance with help from your Ameriprise financial advisor

Ask your financial advisor how you can strike a balance between saving for retirement and paying off debt that’s consistent with your financial goals.