Archive for August, 2013

Save for Retirement or Retire Debt?

Friday, August 16th, 2013

Many of us are faced with this question, especially recent graduates who join the work force with significant student loan balances. According to the Federal Reserve Bank of NY, the average student loan balance exceeds $24,000 and the pressure to reduce debt can be felt every time a loan statement is received. At the same time, we recognize the need to plan for retirement; however, the immediate pressure to reduce debt often outweighs the pressure to plan for something that can be years, even decades away.

Reducing debt, especially debt with relatively high interest rates, is an important financial goal. What retirement planners also need to recognize is the enormous value of compound interest and how it impacts on retirement savings.

For example John and Mary are 25 years old have similar financial situations. Mary begins to save immediately for retirement by investing $100 from each month’s paycheck. At a rate of 8%, Mary’s retirement account balance will be over $18,000 in ten years and over $324,000 when she turns 65.