Debt Versus Retirement: Figure Out Where to Focus With the 6% Rule
We all need to save more for retirement , but many of us are also in debt, be it student loans or credit cards. Figuring out which priorities to prioritize can be tricky, but one thing to do is look at the interest rates on your debt.
Sophia Bera, a certified planner, tells Forbes that it is prudent to pay off debts with an interest rate above 6%, but after that pay more attention to the retirement account.
How much to invest in each of them, of course, will depend on your personal situation and your emotional attitude to money , and 6% is just a guideline. But this is one way to look at it:
While this question is best asked to a financial planner who can take a look at your overall financial picture, you can think of it this way: if the student loan interest rate is 6.8%, the payments you make against those loans give you are guaranteed 6.8%. % of your money back. Your retirement investment, especially when adjusted for inflation, may not be the right fit. On the other hand, if you’re in your 50s and haven’t saved up for retirement, you still want to get off the ground as time is the biggest factor in how much your investment can grow.
There are other things to consider, including whether you have an emergency fund or whether your employer matches your retirement savings, but whatever you do, automate your savings or debt repayment to get your plan going.