Should You Save For Retirement Before Paying Off Debts?

debts versus retirement

Saving part of your income for retirement is a habit everyone needs to nurture from a young age. Most people claim they can’t afford this, especially those with little income, but it is the surest way to secure your future. 

Make saving part of your financial journey the moment you start your first job to help maximize the benefits. With a proper retirement and saving plan, you can ensure you have a comfortable retirement while also focusing on other life goals such as paying off a mortgage quickly.

Here are several reasons why saving for retirement while paying off debt should be part of your financial plan.

Having A Sustainable Savings Plan

Most people have debt at some point in their lives. These debts have to be paid, but they should not halt your plan for saving and investing. In certain situations, paying off debt first while stalling your savings can be a good strategy, but the problem with this is some debts will take many years to clear. 

Consider making a flexible debt payment plan to channel some money towards investments, which can compound over the years to help clear your long term debts. Some investments have annual returns, such as stock market dividends, which you can then use to help pay off your debts. 

In some cases, students who are fresh out of school are advised to hold off repaying their student loans and save money instead. Some people advise students should save until they can afford to invest and pay off debt at the same time.

Training Good Habits

Generally, the habit of investing prepares you for financial crises that might come up later in life when you’re not as capable of working as when you were younger. 

The idea behind this is compound interest can snowball much faster than a low-interest student loan bill.

Depending on the amount of debt owed, you should always contribute a certain percentage of your income to retirement savings so you can secure your future. However small the contribution is, it makes a difference over several years. 

Saving for retirement as you pay your debts is a win-win situation since it becomes much easier to achieve financial freedom.

Financial Responsibility

If your employer makes additional retirement contributions in the form of a match, you should not delay investing – at least the amount of the match. An employer match is essentially a 100% return on your money.

First, find out if your employer is willing to match your contributions. If they are, find some way to budget in your retirement contributions from the start – regardless of how much debt you have. Employer matches usually involve a certain percentage that can range from 3 to 5 percent. 

If you have a large amount of debt, you should consider investing, at a minimum, the smallest percentage match so you can start working on any high-interest debt. Clearing your debts is not only emotionally fulfilling, but it also works hand in hand with financial freedom. Also, once the debts are cleared, you can quickly increase your retirement contributions.

An experienced finance and economics research writer for the best essay writing service suggests that to easily achieve this, you need to view debts and retirement savings as separate entities, so it can be easy to deal with both. Clearing debts helps you eliminate extra expenses that come with them, but investments help you save (and gain interest) on the money that you already have. 

One might think they need to earn a lot of money to save comfortably, but that should never be the case. Be sure to go through your financial records, decide the do and don’ts, (needs vs. wants), and identify the most comfortable plan that achieves both goals of saving and paying off debt.

Building Wealth

Saving early on is the easiest way to build wealth, which you can pass on to your future generations. Saving comes with investments, and over time, you will realize your money has given birth to even more money. This is why some people find it flexible to slowly clear their debts as they also save for their retirement. 

However, such a level of wealth accumulation does not happen overnight. That is why this has to be a nurtured habit you develop, whether you’re making a bunch of money or not. It also means having an eye for potential investment ideas where you can make money. 

It does not make sense to save money in the bank earning less than 1% interest when it can be used to generate more elsewhere (i.e. a retirement fund). This can be easily achieved by prioritizing retirement over the clearing of debts or doing them concurrently. Once you accumulate enough wealth, it becomes easier to offset your debts with a one-off payment. 

A debt-free lifestyle is everyone’s ultimate goal in life, and the sooner one breaks the debt habit, the better. If you find yourself in debt, strategize well to deal with clearing your present situation and secure your future – starting with a monthly budget.  

Financial Backup

As you pay your debts and save on the side, this money can act as an emergency fund to cushion you in need. Most people tend to get into debt and fail to adequately save. With proper planning, this can be avoided. 

Unfortunately, when someone is so focused on paying debts without setting aside any savings, the only option would be to get into more debt by getting a loan. With the rate of unemployment soaring all over the world, saving in advance in a retirement account as well as an emergency savings account works as a backup in case of a job loss. 

By funding a six-month emergency savings account, you can always have something to fall back on in case you lose your source of income. This should be motivation enough to start saving at an early age to avoid going deep into debt. Having a liquid financial backup helps you to manage tough times without having to compromise on your future. 

It also gives you enough time to put a sustainable plan in place, including getting a new job or even starting a business. Without a retirement saving plan, such tough times become hard to handle and you may have to resort to going further into debt before you can begin digging out of the situation. 

Early Retirement

When you start saving for retirement early, your chances for early retirement is increased. Let’s say you start saving in your early 20s, so, in about 30 years, you can choose to retire if you want and live a financially stress-free life. 

This highly depends on the contribution amount and the kind of vehicles you choose to invest in, and of course, clearing accumulated debts. If the investments are bringing in good returns, it’s possible to retire in your 30s or 40s!. 

To see how quickly you can increase your nest egg, if you’re in Canada, you should look into a Tax-Free Savings Account. Enter a few numbers into this Tfsa calculator to see how compound interest works in your favor.

Paying off debts is also an investment of its own because once they are paid off, you will have the surplus amount to add to your savings. The moment you are debt-free, it becomes easier to concentrate more on building your wealth. 

Know the kind of debts you have, and the interest that comes with them, to decide if you would need to offset them sooner than later—for instance, high-interest debt versus low-interest debt.

If you currently have a long term high-interest loan, an option is to get a personal loan with low-interest rates to offset the debt. 

You can then pay the loan as you save for retirement, with an assurance you’re not wasting a ton of money on interest charges and fees.


The ideal approach to this is to balance debt payment and to save for retirement at the same time. You want to lead a debt-free life, but you also have to ensure that you have a secure future. Having your savings in places comes with emotional stability and peace of mind, knowing very well that you will not be looking for a job at the age of 60.

Make saving a habit from a young age, and you will not be disappointed later in life.

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