Balancing Debt Payoff and Saving for Retirement


Ok so obviously I have a ridiculous amount of debt that will keep increasing for at least one more year (thanks grad school!!). While I plan to tackle this debt aggressively over the next few years, I also need to save for retirement at the same time. So, if all my money’s going to my student loans, how will I save anything? Here’s how I’m planning to tackle it starting 2017.

  1. Start by making large payments (about $2500 from my monthly salary, plus bonuses, tuition reimbursement, rental income and tax returns) to the high interest, high balance student loans (there are 3 of them averaging $23000) While I do this, I’ll be able to contribute 10% of my pre-tax income to my 401K and get a 6% match from my company. Contributing 10% of my income would only reduce my paycheck by about $200. I can live with that. If I stick to this plan then I’d be able to pay two of the loans in one year and the third loan in the first six months of the following year (mid 2018).
  2. Delay finishing school by a semester to take advantage of an additional year of tuition reimbursement from my job. So, my initial plan was to take courses in the spring, summer and fall semesters and finish school by the end of 2017. But then I thought about it. The $5250 in tuition reimbursement I receive from my job is for the year. So once I use this money to pay down the spring 2017 tuition, I will not be eligible until 2018 and will have to pay for Summer 2017 classes out of pocket (or loan). Why spend money I don’t have when I can just wait one more semester and get another $5250 towards my tuition? Β So my plan now is to take spring 2017, fall 2017 and spring 2018 courses and graduate in 2018. I will spend summer 2017 paying off the loans I already have and working on my real estate business.
  3. Once I pay off the three high balance loans and get the crazy interest rates under control, aka a year and a half, I plan to increase the 401K contribution to the maximum allowable amount (currently 18000 but subject to increase). I will also contribute $3250 pre tax to my HSA account (see blog about ppo scam). Β Up to 6% of my 401k will continue to be matched by my company and I will be in a lower tax bracket because my pre-tax income will be lowered by the total amount of 401k+HSA contributions. I will continue to pay off the remainder of the loans at a less aggressive level ($500 less than the amount I would be paying in the first year and a half).
  4. I will put the $500 I take away from paying my student loans towards a Roth IRA. The Maximum annual contribution to this account is $5500 so I plan to max it out every year starting June 2018. I also found out that you can contribute to your Roth IRA up until the time you file your taxes for the year so I plan to give myself from June 2018 to March 2019 to contribute to my 2018 limit. I will continue to contribute $500/month towards the Roth until I’m over income.
  5. According to my schedule, I will get my student loans under control (only subsidized low interest loans remaining) by the end of 2019, at which point I will start contributing towards an index fund. Can’t wait to witness the magic of VTSAX! I’ve been reading a lot about it and think it’s the best stock investing vehicle for me. I’m not gonna pretend to know anything about picking stocks. I’ll just invest in the economy as a whole. I also plan on buying 4 properties during this time with a mortgage. My plan is to keep moving and buying these properties as a primary residence which will allow me to put 5% down instead of 20%. Moving might be annoying but doing this a couple of times would help me reach my goals a lot faster. So by January 2020, I will have paid off over $100k in student loans, maxed out my 401K and HSA for two years in a row, maxed out my Roth IRA for a year, purchased 4 properties and started an index fund!!

Yes, I know. Very ambitious and probably impractical. I plan these things out and usually life gets in the way. I have to spend a crazy amount on one expense or the other, I don’t make as much as I think I would or something to that effect will probably happen. I will also be upset and temporarily discouraged by it. But I’ll get back on the horse and keep it moving. If I can accomplish 80% of these goals by my 30th birthday, I will have laid some serious wealth/FI foundations for myself.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s