I used to think that before I could save for retirement, I had to pay off all my debt. Though paying down debt definitely frees up money which helps you save more, it’s not a black and white area where you can only do one or the other. Instead, retirement savings should be a priority with paying off debt close behind.

Here’s the low-down: the sooner you begin saving for retirement, the smaller the monthly deposits need to be in order to meet the goal. The longer you put off saving for retirement, the more you have to save each month making it more difficult to save! Compounding interest works in your favor the sooner you start and the longer you have to save.

Obviously, having little to no debt frees up money needed to save, but both can be done simultaneously. Let’s look at a generic example:

Let’s say Susy brings in $3,500 after taxes each month. If we assume 60% of her paycheck goes towards necessities (rent, utilities, groceries, transportation), she has 40% left for savings, debt repayment, and some “fun money.” If Susy has $5,000 in credit card debt plus $10,000 in student loan debt, we can break down her 40% (or $1,400) as such:

  • Retirement savings – $350 monthly
  • Credit card debt repayment – $600
  • Student loan repayment – $350
  • Fun money – $100

*Notice, I didn’t take into account that her retirement savings was pre-tax income. If Susy had a match on her retirement savings and it was pre-taxed, she would have a little bit more to work with for debt repayment (maybe $30 – $40 bucks each month) and an extra “scoop” of retirement money.

Paying off consumer debt quicker makes more sense since it’s usually charged at a higher interest rate. Once the credit card debt is paid off, she can allocate half of that $600 a month payment towards retirement savings (or a slush fund savings account) and the other half towards paying off her student loans.

Now, for a real-life example:

Without giving away too many details, I’ll use percents and some rough figures to show how I’m paying off debt and saving for retirement. My income averages out to just under $6,300 a month. Basic expenses take up about 70% (a bit high, but I live in an expensive city, what can I say) with the other 30% applied towards savings, debt repayment, and “fun money.”

  • Retirement savings – $250 monthly
  • ER savings – $160 monthly
  • Credit card debt repayment – $575
  • Additional debt repayment – $325
  • Fun Money – $250
  • Extra cash – $325

My income varies each month, but averages out to about $6,300 which means I usually have some extra cash that I apply to a lean month, hence the “extra cash” amount. Soon, I’ll be able to free up that $575 in credit card payments that I’ll allocate towards savings and student loan debt. I’m  also not counting a pension plan that gets deducted before my take-home pay. However, that adds to my retirement bucket nicely.

Notice that I’m paying off my debt fairly aggressively, but I’m still contributing to retirement and savings accounts. It’s definitely feasible to do both at the same time.

Do you agree that paying down debt and saving for retirement can be done at the same time? What other strategies would you suggest?


  1. Poor Student Reply

    I think it can definitely be done at the same time but whether or not it should.. might be a different story. It depends on where your interest rate is higher.

    • @Poor Student – I think it depends on age. If you’re young (20’s), you should probably tackle debt first. But the older you get, the less time you have to save for retirement. Once you hit your 30’s, saving for retirement is mandatory unless you want to work forever.

  2. Paul @ The Frugal Toad Reply

    The interest rate on your debt has a lot to do with how you deploy your cash. Once you are out of debt you can refocus your efforts on building retirement assets and staying out of debt!

  3. Daisy @ Prairie Eco Thrifter Reply

    I am in my mid twenties and while I don’t have debt, when I had my car loan I both paid down the loan and saved for retirement. I definitely do not want to work forever so saving is very important to me.

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