Please help me decide....

**jIM_Ohio** · 02-11-2010, 10:49 AM

Originally posted by Forumfan View Post

I am new to these forums and would love your input on whether I should shoot for paying off my student loan at the end of this year. Here are my financial numbers:

Monthly take-home: $11k
Mortgage: $390k (I bought a condo seven months ago with 20% down, 30-year fixed rate mortgage at 4.75%)
Student loan (grad school): $46k at 2.625%
No other debt
401K: $47k
Savings: $130k (in CDs and savings accounts)
Roth IRAs: $13k (fully funded for 2010)
Total monthly expenses: $3500-4000 (This includes mortgage payment, property taxes, HOA, food, utilities, entertainment, everything)

I am 32 years old and single. The minimum payment on my student loan is about $250 but I'm paying $350. That translates to paying $1,000 a year in interest, which is not tax deductible due to my high income. I would like to avoid having to pay that interest and I can pay off the loan and still have a sizable savings cushion. My current savings is earning about 2% interest, approx. half of which goes to taxes so it's not doing much sitting in the bank.

On the other hand, with the extremely low interest rate, I am very tempted to keep the loan as is. My job pays well but is in a very unstable field and I have at most 3-4 more years in this position. Any other job that I can get after leaving my current one will come with a substantial pay cut (I would be lucky to get a gross salary of $100k). With this degree of uncertainty and my strong (if irrational) fear of ending up homeless, I like to have as big a nest egg as possible to cover future periods of unemployment. If something were to happen and I have to run through my savings, I would never be able to get a loan at 2.625%.

So, if you were me, would you pay off the student loan, and why?

With such a high income, how did you qualify for a Roth IRA?

32 yo and 47k in retirement accounts... are you putting 20% of gross pay to retirement accounts (401k+Roth+other investments should be 20% of gross pay).

I am going to answer your question backwards. Meaning do some math and let the math answer question

I estimate you will want $1.2 M to retire on (assumes 48k in annual expenses).

$1.2 M age 65
$600k age 57
$300k age 49
$150k age 41
$75k age 33

If you have 75k at age 33, your retirement savings will be "on track" in my estimation. I don't know if you invest for a 9% return or not, so its also possible I made some bad assumptions.

If you have surplus money, I would look to invest it for retirement now.

Considering you have about 7k surplus per month, I would think you could save for retirement and also pay down the student loan debt. No reason to think you cannot do both

**Forumfan** · 02-11-2010, 11:05 AM

Thanks for your reply Jim. The Roth is a combo of my contributions when I was a student, and earning nil, and my contribution of post-tax $$ to a traditional IRA, which I converted to a Roth a few weeks ago (the rules recently changed to allow conversion regardless of income).

I contribute to the max for my 401k (no matching), and up until this year, I did not contribute to any IRAs because my income excluded me from most of the tax benefits. I consider my $130k to be partly retirement savings, even though it's mostly in CDs. I haven't had a chance to really learn about investments up until now, so I've just been socking most of my 401k money in index funds. I may start focusing more on diversification of my portfolio and bonds via taxable retirement accounts in the near future.

Please help me decide....