Invest in retirement or pay off student loans?
At yesterday’s financial planning luncheon sponsored by the Young Lawyers Division, I asked the panel “How do you convince, or do you even convince, a group such as young lawyers, many of whom are saddled with 50, 70, 100, even more, thousand dollars in student loan debt, to investment plan and retirement plan when the rate of return on those investments is not guaranteed to exceed the amount paid in interest on the student loans.”
Unfortunately, no simple answer was provided. I received more “great question, dave” comments from my colleagues and the panel than I did definitive answers. And that is understandable, because, as the panel explained, it is a very personal question which requires a very personal analysis. One of the panelists advised to, at a minimum, at least contribute to your firm’s 401k plan regardless of student loan debt. I have received the opposite advice as well – to pay off your student loans first.
Based on the feedback I received from my colleagues, many have been thinking similar thoughts to my question, and I suspect that many have not, as a first step, taken the time to sit down and analyze the numbers to determine, if you have been putting aside money in your firm’s 401k plan or otherwise investing, whether your rate of return over the past few years is higher than the interest you are paying on your student loan. Based on my research and inquiries of experts, I believe that is the best first step, and the panelists agreed. It sounds simple enough and almost too obvious to state, but trust me, many of my friends who heard my question yesterday told me that they haven’t done this first step, even after several years of practice. After all, automatic withdrawal from your bank account is much much easier, and does not require much thinking.
Second is where the personal elements come into play, and that is much of where the panel focused on yesterday in response to my great question. Like, how much money do you have after paying bills and loans to invest? Or, psychologically, how much of a toll does student loan debt have on you?
So I understand sometimes that there are no simple answers to great questions. But at the least, great questions should get those of us who focus so much on solving other people’s problems during the course of our busy work day to take a few moments and focus on your own problems, concerns, and finances. As for me, I am okay with student loan debt, as long as I take control of it, and do not let it take control of me.