SURVEY SAYS: Paying Down Debt or Saving for Retirement?

There are arguments on both sides regarding whether paying down debt should be priority over saving for retirement or vice versa.

Last week, I asked NewsDash readers, “Do you think people should focus on paying down debt before focusing on saving for retirement?” I also asked, “For you, personally, what is your first priority?”


As expected, the majority of responding readers (67.5%) work in a plan sponsor role, 18.2% are TPAs/recordkeepers/investment managers, 11.7% are advisers/consultants and 2.6% are attorneys.


Nearly three-fourths (74.4%) of respondents said people should focus on paying down debt and saving for retirement at the same time. Two in ten (20.5%) said they should focus on paying down debt first, and 5.1% said they should focus on saving for retirement first.


As for their own experience, six in ten responding readers (60.3%) are focusing on paying down debt and saving for retirement at the same time. Nearly one-quarter (24.4%) reported that saving for retirement is their first priority, while 15.4% indicated paying down debt is their first priority.


Comments left by respondents about prioritizing debt over retirement savings or vice versa were a mixed bag. However, most were in favor of addressing debt and retirement savings at the same time. Many advised that everyone should first take advantage of the employer match, if there is one, in their retirement plans. Some explained that the decision is not so simple and requires analysis. Editor’s Choice goes to the reader who said: “You should pay toward whatever has the best return on your money. Investing at 3% does not beat paying toward an 8% loan. #math”


A big thank you to everyone who participated in the survey!



You should do both simultaneously. If you don’t save for retirement, you may miss out on gains over many years and a company match if you’re investing in company plan. You still can pay down debt a little at a time.

With minimal pre-tax savings, the payroll offset is a wash so it doesn’t make sense to ignore retirement altogether, especially if an employer match is involved.

If the interest rate on your debt is lower than your investment earnings, then you should prioritize saving. Otherwise, you should prioritize paying down debt.

Like everything in life, it is a balancing act – if you can do a little with both you can save from paying interest on your debt and save for retirement allowing your savings to collect interest.

Most people are not serious enough to focus on debt and then max out their retirement. Therefore, I think people need to focus on both. I was fortunate enough to focus more on debt but convert the money I saved to retirement and will be enjoying an early retirement.

Luckily for me the only debt we have is our house mortgage, and with interest rates so low and locked in, there is no reason to try and pay the house off sooner than making sure it is paid off by the time retirement time comes.

The type of debt matters. Pay off credit cards, car loans, etc before mortgage. If you can’t address debt AND retirement, you need help from financial adviser.

Paying off debt will free me of stress and burden. I can certainly then focus on saving for retirement.

If you have no savings at retirement, then it doesn’t really matter if your debt free, does it? You’ll still have to work to pay the bills.

I wish that I had access to a retirement plan fresh out of college, and that I had started saving something. I think that it is a no brainer that the sooner you start the better. My just graduated daughter knows that as soon as she is eligible for her company’s retirement plan that she WILL be saving at least enough to get the full match.

Create a budget so you can do both. As debt is paid off, allocate your additional funds to paying off more debt and towards retirement/general savings.

First, establish an emergency fund. Then, pay down non-mortgage debt. Then, save for retirement. The interest that people pay on consumer debt is outrageous and will set them back financially for years. Get rid of that albatross ASAP.

An analysis should be done regarding the interest on the debt and the interest on the investments. The debt should always be attacked, but depending on the interest variance, the emphasis may change if earnings are better than debt servicing. One should always be analyzing. Without analysis, attack the debt first.

Right out of college, I had very little money and thousands in student loan debt. I wanted the debt gone asap so I threw everything I could at it, including money I received for birthdays and holidays. At the same time, I contributed, albeit very little, to a 403(b). I paid the loans off 3 years early and the 403(b) is still earning. I think it’s best to do both if possible.

I believe that having a balanced approach to saving and paying down debt is more practical, unless the debt is more than say 35% of your net-to-income. If someone has access to an employer-sponsored retirement plan that matches a percentage, not saving is simply not utilizing your matching contributions, even if it was a small amount.

Retirement Savings is so important. I think many individuals will say they are paying down debt but really only accumulating more. Eventually the accumulation of debt will stop as your credit line runs out. Then you will need to focus on paying down debt but you will also have a nest egg building for retirement.

Never pass on a 401(k) matching contribution!! Always contribute enough to gain the full available match!!

Sadly, most people will always have some amount of debt during their working lives. Realistically, if everybody waited until the debt slate was clean, they’d never save for retirement. Of course debt reduction should be a priority, but not at the expense of foregoing retirement savings. Particularly when you lose out on company matching money. I advise new, young employees who have school loans to opt down, not out, of contributing to our DC plan. While not getting the full match, by contributing 3%, they do get a 3% match. Hard to beat an immediate 100% return!

Definitely pay down debt on high interest rate cards first then work on lower rate car and home loans while saving for retirement.

I am a fan of Dave Ramsey and it has served me well. I paid down all debt except for the mortgage, established my emergency fund then invested 15% towards retirement. I will be retiring at age 56 with a nest egg better than I could have imagined. My only problem is learning how to let go and spend some of my money. What a great problem to have!

Human nature makes people with debt continue to amass debt. If you wait to pay it down before saving, you’ll never adequately save. Also, you need to develop the discipline to save as early as possible. Many advisers repeat the mantra of paying down debt first, but I have found that saving and investing early has provided me with assets far in excess of the low amount of debt I carry.

You gotta get that match!

It’s important to work on both at the same time, since interest on debt increases debt over time, and earlier investment for retirement puts growth through appreciation on your side over a longer period of time.

I am fortunately in a position with no debt so I can focus entirely on saving for retirement and health care. If you have debt to pay off and a company plan with a match, you should save at least the amount of the match and pay down debt at the same time.

Sometimes it feels like debt will never go away, so if you wait, you could wait forever! If you start saving first, you’ll have that immediate deduction of disposable income and will be able to budget an amount to pay towards debt. If you always wait until you’re ready, you’ll never be ready!

It’s a tough question – obviously hitting retirement with debt is not the best idea, but if you save little to nothing for retirement, you’re giving up the benefit of long-term compounding.

It is hard to give a blanket response because it depends on how much is owed. If the only debt is a house payment, they need to do both. But if they are in way over their head, they need to make lifestyle changes and reduce their debt load so they can save for retirement. For those in over their head, I like the Dave Ramsey program. Personally, we haven’t had debt for at least 15 years. The house was paid off at least 15 years ago and we save for big purchases, like cars, and then pay cash! In the meantime, our retirement fund grows very quickly. It’s a great feeling!

First take advantage of any company match for the 401(k) plan etc and then focus on paying off all debt other than your home mortgage.

Currently, I am contributing enough to my 401(k) to get my employer’s full match, and focusing the rest of my discretionary income on paying down debt.

5 years ago, I gave myself a 3 year plan to have my debt, which included future spending, under control. As of today, I have $0 credit card debt, have paid cash from 529 and savings for my son’s college tuition (he’s now a Sr.) and have upped my 401(k) contribution. I’m pushing 60, so I still feel behind the 8-ball when it comes to saving for retirement, but I at least feel relieved to not “have to work” should my job be eliminated which would put me on a much smaller monthly budget. I would tell anyone to at least save the same % as what their company puts in. It really IS possible to not spend that $10 a day on coffee! Use a debit card instead of a credit card. It’s a huge reality check of how much you’re really spending when you run out of your own money to spend! Huge debt in your later years is an unnecessary burden and worry. Have some willpower now. Spend what you need, not what you want.

As with all financial decisions, a balanced approach should be pursued. There are good and prudent uses of debt (e.g. mortgage, allocating an expense over time such as a car purchase) and accelerating repayment rather than saving for retirement puts off the opportunity to build savings over time (investment return). Waiting to initiate retirement savings will leave too large of a need to effectively meet in a short period of time. Debt management should be accomplished by prioritizing that process over alternative current spending decisions.

I would say contribute to your employer’s 401(k) plan up to the match amount. Then continue to pay down debt as best as possible. I review my budget every month to see if I can send more to my debt to try and get it paid off quicker.

It depends on the interest rate of the debt and the kind of debt (mortgage vs credit card.) It also depends on the type of retirement savings. If you are getting a dollar for dollar match on a 401(k), it may be worth more than paying down the debt. If you are making contributions to an IRA, it may be better to pay off the debt.

Place your focus on not accumulating debt in the first place then you do not have to decide on paying off your debt or saving for retirement. That means don’t use credit to pay for dining out or expensive vacations and other entertainment unless you can pay it off right away. This will allow you to save for retirement, vacations and other things in advance and also use cash for entertainment and normal expenses without using credit. But if you have already chosen to accumulate debt, start with paying down your debt and saving at least the amount to receive maximum match and increase your retirement savings as you pay down your debt.

I encourage plan participants to pay off high-interest type debts (i.e. credit cards) prior to saving for retirement. This also involves a possible lifestyle change with their spending habits. In my opinion, it doesn’t make sense to set aside a percentage of your pay in a 401(k) when you’re paying double digit interest on your credit card debt.

I have no debt, so saving for retirement is a lot easier for me.

Debt definitely needs to be paid down, however you can’t miss out on putting money aside for retirement… otherwise you will be stuck in that cycle.

Both paying down debt and saving for retirement provide piece of mind. But the stress of undersaving long-term is less than the day-to-day stress of having a huge debt load hanging over your head. Both are important, but if I want the feeling of financial freedom, I focus on paying down debt first and then accelerating my long-term savings plans later.

I suppose as with most questions on this nature, it depends…. How much debt does one have? What is the nature of the debt? How many years until retirement? What are your spending habits?

Savings goals change over the course of a lifetime. I think we need to impress on our kids to live within their means so they won’t have this mountain of debt some people have. Cash is still king.

Debt is a part of life these days, so I think it is managing both at the same time.

Determining the priority depends on how much debt one has. If the debt load is too great, then that must be the focus. If the debt is manageable, then the employee can focus on both. My debt is under $3K.

You have to be smart with both. What is the point of saving, saving for retirement if you are in debt up to your eyeballs. Save for retirement, but most important – live within your means!

No point in being debt free in retirement without enough income. At worst, bankruptcy will clear debts and qualified plans are protected.

I think only have mortgage debt. I want to retire between age 60 and 63, but won’t until the mortgage is paid off!

It would be great if this wasn’t even a problem…. Since I am on the young side, my student loan debt is very high, but if I waited until that was paid off, it would be too late to save for retirement!! Currently, I am paying off debt little by little and saving for retirement, little by little…something goes into each every month!

Tough call, as you don’t want to miss the time value of the market. Paying down debt and not adding to it, except the primary residence, will give higher percentage to invest. We are doing both, but the focus is the debt.

It’s important to be able to have your financial house in order today to be able to focus on your tomorrow.

Absolutely pay off the debts first as the interest that accumulates on the debt is way higher than the interest that is paid on savings. Otherwise the debt interest will wipe out the savings interest and a person will lose.

The first priority should be to collect all of any 401(k) match that is available to an employee. After that, debt reduction should be the priority.

Dave Ramsey is right. Behavioral finance is more about behavior than it is about finance and numbers. It’s better to sacrifice some retirement savings (even if matching funds are left on the table in the short term) to pay off and then avoid debt. Do that and you’ll have plenty of time to catch up on your retirement savings, and you’ll have the cash flow to do it.

My husband and are blessed…we have been completely debt free for over a year now and now focusing solely on saving for retirement…which is still 20 years away.

Keep a balance. Habits are hard to break, so you consistently rack up debt you may never save for retirement.

I think it depends on where you are on the retirement horizon. If you are relatively young, I think the focus is on saving more earlier and then backing off a bit in later years and focus on paying down debt.

Rarely in life are decisions either/or. Primarily due to the earnings compounding effect, one must do what they can on both fronts. Otherwise, too much of your retirement savings will be going toward paying debt, or there will be less retirement savings that can never be recaptured. Time is either your friend or your enemy – maybe both!

You should pay toward whatever has the best return on your money. Investing at 3% does not beat paying toward an 8% loan. #math

Student Loans will come back to haunt Millennials in retirement. You just can’t get the time back, kids need to start saving from birth.

You should always make sure to get the ‘free money’ by maximizing the match even when paying down debt. As debt decreases, savings should increase.

Pay down the debt first because the interest rate you’re paying is probably way higher than the interest you can make in your retirement plan. Plus you’ll feel better when it’s gone! Just don’t rack up any more!

The best advice I ever received was to pay myself first and learn to live within my means.

Must look at the cost of the debt vs investment opportunity cost to determine which makes more sense. When returns are greater than the cost of the debt, I would focus on investing and vice versa when debt cost are greater than the returns on investments.



NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Strategic Insight or its affiliates.