Yes, I know. There are so many of these questions, and answers, that it may be redundant. But really, how much?I'm returning to college full-time either this fall or next spring. I've got 30-40 years to retirement, or at least that's the current plan. I know the mantra of compound interest, and a little goes a long way. But I also just paid off my debt and don't want more to go to school. So do I keep investing for retirement over the next few months anyway, or save everything I'm making in my education accounts?OLF
We need more information. If you have sufficient funds to invest for retirement after paying your expenses for school, certainly you should invest for retirement.If school expenses would require borrowing money in order to save for retirement, then usually you should compare interest rates. That probably means you should forgo investing until school expenses are covered. However that may not be the case if you have reason to believe your investments will perform well above average. What is your experience with investing? Are you a good stock picker? Do your investments far exceed the averages? If yes to these, the answer for you may be different than that for a typical individual whose investments may not do that well.You may also want to factor into your thinking things like tax deferral in IRAs or 401Ks, future needs for funds for a downpayment on a house, or for special purposes like educating your children.In short the answer becomes easier when you have developed a lifetime financial plan covering all major expenses--including retirement and expected sources of income. This plan too can cause the right answer for you to change.Best of luck to you.
Here's one more consideration - once you've finished school you'll probably be able to make more money and therefore have more to invest. Yes, there are a lot of factors, borrowing, interest rates, waiting, etc, but don't forget about the reason you're going back to school should lead to having more to invest. I once did a study about considering the cost of a degree as an investment, with the proceeds being increased earnings. It was a great investment. I've seen other folks do similar studies, as class assignments, and come up with the same answer. And, finishing college has benefits beyond just increased earnings - like job mobility, self esteem, etc. From me too, good luck with whatever your own answer turns out to be.
One more thing to add is that the student loan interest is tax deductible. So, for example, if you're student loan interest is 6% and you're in the 27% tax bracket, that interest you pay is actually 6%*(1-0.27)=4.38%. Also, student loans are very flexible meaning there is possibility of deferment or forebearance. Also, there is I believe 3 or 6 months grace period after you graduate.My recommendation is to contribute 100% to Roth or Traditional IRAs. Since you won't be working??, I'm guessing you can't take advantage of 401k. With other money left over, calculate how much you need in emergency fund and allocate accordingly. If there is more money left over, put everything into education.Hope it helped and good luck with school,Jin
One more small detail... if your employer matches your retirement contributions, you should at LEAST contribute that much over the next few months even if it means you have to borrow some because you'll never pay an interest rate on student loans that will cancel out the long-term appreciation of that money.-- Mark
My best advice would be:Start saving right now, even if it is only a token amount. And put it someplace where it would really, really hurt to take it out before retirement. Then set up a disciplined plan to up the monthly contribution each year, maybe with only an additional $5 increase each time.The important thing is to START and the next most important thing is to CONTINUE.In my own sorry case, I did just the opposite. I put off starting. When I did start (usually with an amployer offered plan) I didn't continue. As I moved from employer to employer I cashed out my plan assets to use for new cars, down payment on a house, vacations, etc. When I became self-employed as a consultant, I found myself with gaps between projects. I used my accumulated savings for cruises, vacations, and other forms of temporary "retirement". Now here I am, 9 years away from retirement, fortunately with a very good job and great benefits trying to "catch-up" with where I need to be financially for my retirement goals. Now I'm piling over $35,000 a year into 403(b), 457, Roth IRA, Non-Deductible IRA, and Taxable Account so that I can arrive at the same place I would have been for a few hundred dollars a month for the last 40 years. I don't know of too many people who can afford that level of contribution, so it's best to start early when you can do the whole trip in easy steps.And as everyone knows from Income Tax, Social Security, Insurance Plan Contributions, etc., any money that doesn't show up on the bottom line of the paycheck isn't missed. But once the green bills are in your hot little hand, it's really, really difficult to always put them away for a rainy day (or retirement - same thing, if you're not prepared).
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