1. Retirement Planning For 30-Somethings: Introduction
  2. Retirement Planning For 30-Somethings: Check Your Progress
  3. Retirement Planning For 30-Somethings: Enhance Your Budget
  4. Retirement Planning For 30-Somethings: Increasing Your Savings Rate
  5. Retirement Planning For 30-Somethings: Reducing Savings
  6. Retirement Planning For 30-Somethings: Managing Life Changes
  7. Retirement Planning For 30-Somethings: Managing Your Credit Score
  8. Retirement Planning For 30-Somethings: Managing Your Investments
  9. Retirement Planning For 30-Somethings: Avoiding Withdrawals
  10. Retirement Planning For 30-Somethings: Deposits And Loans
  11. Retirement Planning For 30-Somethings: Retirement Resources
  12. Retirement Planning For 30-Somethings: Conclusion

If you have accumulated savings, but find yourself highly in debt, it is possible that you are saving too much. Having a large nest egg can be attractive, but the associated benefits can be eroded by the interest paid on outstanding debt. If you do have outstanding debt, you will need to determine whether you should reduce the amount you add to your savings so as to allocate more towards paying off your debts, or continue adding your usual amounts to your retirement nest egg. The following are some points for consideration: Interest Cost vs. Interest Earned
The net amount of the interest that you would earn on your savings versus the interest that you would pay on your debt should be assessed. If your savings are invested in vehicles that provide a fixed rate of return, it is easy to project the amount of interest that you will earn over a given period. However, if you invest in stocks and other assets for which there is no guaranteed rate of return, you may need to work with a financial advisor to determine a reasonable rate of projected return, which is usually based on several factors, including historical performance of the assets in which your savings are invested.

Calculate the amount of interest that you would pay on your outstanding debt over time if you pay the amounts that you can afford, and compare that to the earnings that would accrue on your savings. The calculated earnings on your savings should take any income tax that would be owed on the amount into consideration. For regular savings and brokerage accounts, the income tax owed would generally be paid every year when you file your tax return, whereas the income tax on tax-deferred savings would be owed at the time the amount is withdrawn from your retirement savings account.

If you find that you would be paying more interest than you would earn, it may make more financial sense to reduce your savings and increase the amount allocated towards paying off your debt, so as to reduce the amount of debt-related interest you would eventually pay.

Do You Get a Matching Contribution?
If your savings are being added to an employer-sponsored retirement plan, such as a 401(k), 403(b) or SIMPLE IRA, and you receive a matching contribution, that factor should be taking into consideration. If reducing the amount that you save also means giving up the opportunity to receive matching contributions from your employer, that too should be factored into your calculation. In some cases, the matching contribution may result in a higher return on your savings than the amount of interest you would pay on your debt, but that is not always the case.

Are Your Earnings Tax-Free Eligible?
If your savings are added to a Roth account, income tax due on the amount would be paid when you file your tax return for the year. However, the earnings on those amounts could be tax free, which could make saving your disposable income a better option than allocating more to paying off your debt. However, an analysis should be done so as to make a reasonable determination.

Retirement Planning For 30-Somethings: Managing Life Changes

Related Articles
  1. Retirement

    Top 3 Retirement Savings Tips For 55- To 64-Year-Olds

    Find ways to save money and increase your nest egg for the fast-approaching golden years.
  2. Retirement

    Debt, Savings, Retirement: Where Should Your Money Go?

    Come up with a money management plan that will help you allocate your funds effectively.
  3. Financial Advisor

    5 Ways To Get Out Of Debt Without Sacrificing Your Retirement Savings

    Getting out of debt and saving for retirement doesn't have to be a choice. You can reduce your debt load without sacrificing your retirement savings.
  4. Personal Finance

    Professors: Slash Your Debt or Build a Nest Egg?

    If you're a professor with a sizable amount of debt, paying it off and investing do not have to be mutually exclusive.
  5. Financial Advisor

    10 Tips For Achieving Financial Security

    Follow this sound advice and plan for a comfortable future.
  6. Retirement

    Laid Off? You Can Still Retire

    Joblessness is temporary, but neglecting your retirement savings has permanent consequences.
  7. Financial Advisor

    Saving Vs. Paying Off Debt

    If you can't decide whether to build your rainy day fund or pay off debt, we weigh the options for you.
  8. Retirement

    Top 4 Reasons To Save For Retirement Now

    No more excuses. Make sure you are financially secure and independent for your golden years.
  9. Retirement

    Saving For Retirement: The Quest For Success

    We'll show you how to set yourself up to retire in style.
  10. Retirement

    Build Your Own Retirement Plan

    A step-by-step guide to planning for your retirement. The sooner you start, the easier it will be to build a good cushion for your future.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center