Should You Save for Retirement or Pay Off Student Loans First?
Why Debt Freedom Beats Early 401(k) Contributions
The Dilemma
You land your first job. HR says: “Start your 401(k)!” But you’re also staring at $30,000… $50,000… maybe even $100,000 in student loans.
For most borrowers, the smart move is not to start saving for retirement immediately. It’s to crush debt first.
Why Debt Reduction Comes First
Save thousands in interest
Build credit faster → cheaper mortgages, car loans, and credit cards
Avoid raiding your 401(k) (and paying penalties + taxes)
Lower stress and more flexibility later
Real-World Examples
Example 1: $30k loan at 5%
Standard 20-year plan: Pay $47,716 over time.
Pay it off in 61 months instead: $33,837 total.
Savings: $13,879.
Example 2: $100k mixed loans
Standard 20-year plan: $200,633 total payments.
Use a snowball strategy: Pay off private loan fast, roll freed-up payments into other loans.
Total drops to $146,271. Savings: $54,362.
The Hidden Cost of Debt
Bad credit makes borrowing far more expensive. A weak credit score can easily cost an extra $500 per month across credit cards, car loans, student loans, and mortgages. Paying down debt early helps you avoid that trap.
The 401(k) Trap
Nearly 60% of young workers withdraw early from retirement accounts — paying taxes and penalties. Skipping contributions for a few years is safer than starting early and sabotaging your savings later.
The Bottom Line
Fidelity says you should have retirement savings equal to your salary by age 30. For today’s heavily indebted grads, that’s unrealistic.
The better investment? Freedom from debt. Once your loans are gone, you’ll save more, stress less, and build retirement wealth from a stronger position.
And here’s the twist: under the new Secure Act 2.0, most employers will automatically enroll you in a 401(k). Following this advice means opting out of that default — going against conventional wisdom, but often the smarter financial move if you’re buried in debt.