I'm currently 23 and deciding if I should pool my extra income every month towards my retirement or student loans.
I believe between saving for retirement and student loan debt I have about ~1,100 I can contribute a month.
Original plan: Contribute ~800/mo for student loans, $300/mo toward Roth IRA. Aside from the ~$1,100, I also currently have about ~5%(with company match - not great) of my income going toward my 401(K) with a employee sponsored Pension Plan(makes up for low 401(k) match) as well.
My student loans are ~$54,000 with a weighted average IR of 5.325%. EDIT: Monthly payment is ~$325. I set my self up with the 25/yr repayment plan SOLELY to be able to pay down extra on principal of my highest loans. I also want the flexibility in case of emergency, so that my payment will not be significant for a month or two (if needed), but do plan to pay as much as I can outside of that. I understand the value of payments on principal well.
Should I be putting my extra income down toward student loans? I have a mix between 6.8% and 3.8% interest student loans. One of my thoughts was to pay the 6.8% off as fast as possible and after that save the max for a Roth IRA.
Thoughts on retirement savings:
- Vanguard S&P 500 ETF (VOO)
- Vanguard Total Stock Market ETF (VTI)
- Vanguard Total International Stock ETF (VXUS) OR Vanguard FTSE All World Ex-US Small-Cap ETF (VSS)
I also have considered doing a Vanguard Target Retirement Fund (2060) and then to keep re-adjusting my "target" into older accounts (2065, 2070..) to keep the highest stock/bond mix until I feel I want to re-adjust, at which time I can sell my shares and buy into different ones. That, or control it myself with Mutual Funds or ETF's at a later date. Also, not sure I want to deal with keeping track of my basis, dividends paid out for tax purposes, etc.... since the DRIP with ETF's wont be enough to directly buy a new share of any of these funds.
In order for this question to be answered we need an assumption: average Rate of Return: 6%. This is lower than the 6.8% that ~half of my loans consist of. Should I be pooling money towards the loans?
It's also important to note that I am paid bi-weekly, meaning I'll have ~$3,000 to contribute to my payments a year, plus my tax-refund, annual pay raise (~2-3%), and bonus (~4-5k before-tax, conservatively). Assuming nothing major comes up I plan on putting all(or most) of this money towards my student loans. This may change some answers considerably since I'll most likely have more than $800/mo going toward it, but it's not guaranteed.
EDIT: My concern is that I will miss out on years of investment interest, etc...
EDIT: Currently in the 25% tax bracket at 58k/yr. 10k off the top + $1,400/year on Health/Dental/Vision will not bring me down to 15%...even with $5,500 contributed to Traditional IRA...
Looking for multiple perspectives on this question..