At blooom, we are huge advocates for starting to save early and often for your retirement. We are commonly asked the question – I still owe money on my student loans –is it OK to start contributing to my 401k?
Often times people are advised to pay off all of their debts (other than a mortgage) before beginning to save for retirement. I disagree with that strategy.
If you work for a company that offers a pre-tax retirement savings account like a 401k, 403b, or similar AND that company offers a match based on your contributions I think it would be foolish to pass up this free money while you are busy paying off debts. You would be missing out on a guaranteed return on your money by not contributing to your 401k. If you are still saddled with student loan debt, credit card debt, car loans, etc – my advice would be to contribute just enough (and not a penny more) to get the maximum match from your employer. All other excess funds should be aggressively applied to paying down your debts from smallest balance to largest balance – the Debt Snowball method that Dave Ramsey has advocated for years. Once these debts are paid off you can ratchet up your contributions to 10% or more.