Debt v.s. Retirement – Where Should Your Money Go

June 15, 2022
Senior couple embracing in sunny field

For most people, thinking about paying off debt or saving for retirement causes physical and emotional stress. According to The Debt-Stress Connection, being stressed from these issues “correlates with depression, high blood pressure, and worse general health.” There are many ways to go about paying off debt and saving for retirement. To find the plan that is best for you and your amount of stress we have listed some helpful tips to guide you in the right direction.

When deciding how/when to pay off your debt it is important to note that there are two different types of debt- good debt and bad debt. Your installment debt like mortgage and student loans is good debt. When you make payments on this each month you are decreasing the principal and slowly lowering your interest. Bad debt is revolving, if you make a minimum payment each month it will be hard to get ahead. This debt includes things like your high- interest credit cards.

Even though it may sound simple to pay off bad debt first it depends on what stage of life you are in and the amount of stress debt brings to you. Every person’s financial situation is unique, and no two peoples monetary strategies will look the same. There is no one right way to pay off debt. Ultimately you have to decide what is best for your physical and mental stress levels.

College Graduates

Studies show that 64% of recent college graduates have $29,000- $40,000 in student loan debt, and oftentimes work more than one job to try and pay it off. The high amount of debt can cause stress and make people feel like they should pay off their student debt before saving for retirement. Paying off student debts quickly is a great thing to try and do, however, it can mean that you miss out on tax deferrals, employment match, and the time value of money, according to Marguerita M Cheng of Blue Ocean Global Wealth. Cheng also thinks its important for recent college graduates to evaluate their debt; “Most college graduates underestimate how much debt they actually have.” Knowing exactly how much you owe will help you in making the choice of paying debts off first or starting to save for retirement. For some people paying debt quicker would be better for health reasons. Only the individual knows how much strain and anxiety they can handle and how quickly they need to pay off debt.

Layed Off

Being laid off from a job is a sticky situation to be in when it comes to your finances. It is always best to have a plan. Review your finances and figure out what cost you can cut immediately, get rid of anything unnecessary. According to financial planner Kimberly Foss you may want to rethink your retirement age. Your social security benefits grow each year by 8% if you do not file until age 70. In today’s market 55% of people in the job force work past age 65, and 40% work past age 70.  Foss also says that you should view this time as an opportunity. You now have the chance to apply to jobs and do things that you did not before. Do not be opposed to extra education, you can set up a tax-deferred 529 to fund your education. If you’re over 50 and starting a new job it is important to redouble your efforts to save in the companies 401(k), you can stash an extra $5,500 for retirement due to the catch up provision.

Unexpected money

You sell a business, inherit some money, and win the lottery- what now? Should you pay off your debts right away or save your new earnings? Being in this situation can raise a set of issues to work through, figuring out what to do with the money is an important step. You may even want to keep the money a secret until you speak to a professional.

Investing money in stocks may be a good option if you are still 10 to 15 years from retirement, you still have time to recover from any losses. Money that is needed more immediately can be invested in low-risk bonds or kept in an account. Get financial help from a professional and talk about the different choices you have.


After a divorce people usually find themselves in a situation of trying to rebuild their financial status. Paying off debt and saving for retirement can be hard to adjust after a divorce. The rate of divorces after 50 has doubled since 1990, which makes planning for retirement an even bigger challenge. After a divorce, your finances should be your top priority. Seeking assistance from a Certified Divorce Financial Analyst (CDFA) is a good option to help you figure out the right plan for your situation. According to financial planner, Michelle Buonincontri, “It is usually best to try and pay off debt first because your credit impacts a large portion of life.” Both parties need to create and work towards a financial goal. Ultimately it depends on the emotional needs of the people involved and what will get them on the right track for retirement.

Close to Retirement and Empty Nesters

After the kids have graduated from college you may be in the situation to become debt-free. It is best to start with high-interest rate credit card debt before anything else. Most credit card companies charge 19% interest or higher. Ten Haagen of Ten Haagen Financial Group says “Pay off the highest interest rate first and work your way down from there. Do not contribute to a 401(k) until the debt is gone.” If you are still 10 to 15 years from retirement you can use the time to get a better total return on investment. And investing in a health savings account may be beneficial at this time to prepare for any unforeseen medical cost in the future. Once you have paid off the debt invest as much money as you can each year into a Roth IRA and 401(k). Talk to a financial advisor to help strategize the best way to save as much money as you can before your expected retirement age.


When people near retirement age their priorities tend to shift, they may need to deviate their payoff versus investment strategies. Make a budget and stick to it, work on paying off your debt before saving. Be smart about student loan debt, whether it is your own or your child’s. Look into the idea of loan consolidation and make sure the monthly payments are met. It is best to retire with as little high-interest debt as possible. However, zero-interest or low-interest debt can actually be beneficial, for example, tax-deductible debt. Even though it is best to pay off debt quickly make sure that you are still keeping enough cash on hand in case of an emergency. Talk with a financial professional to figure out what is the best monetary plan for your life and lead you to retirement with as much success as possible.

Things to Think About

    • Make a plan, stick to it, and work on it each year.
    • Make a list of all the debt you owe and what the interest rates are
    • Individual debt tolerance will determine how much debt you will want to have in the future
    • Talk to a financial planner- they can help get you on the right track

There is no right way to pay off debt and save for retirement. Everyone’s situation is different and you have to decide what is best for you.

The opinions above are of financial professionals and not Southern Life or its affiliates. The instructions provided are for informational purposes only and should not be seen as investment strategies from Southern Life. Please contact a financial professional for your individual needs.