Savings vs Pay Down Loans

[vegas0012]

Background:

My wife of 1 year is a 3rd year medical student interested in OB/GYN or ENT. I am a firefighter for a large municipality pursuing a master's degree part-time.

Debts:

No consumer debt.

Mortgage - $150k note on 30 yr. fixed @ 4.375%, 20% down payment at closing

Student Loans

Wife - $80k mix of subsidized (begins accumlating interest after graduation) b and unsubsidized (accumulating interest on disbursement of funds) federal loans

Myself - $8.5k of subsidized federal loan

Assets

ROTH IRA - $14k - mix of S&P 500 index fund, bond index fund, and money market

Defered Comp - $1500 - similarly diversified

Pension - defined benefits - 50% pension at 20 years, 3% more each year after 20 up to a max of 80%/30 years


It would, seem at this point, more advantageous to pay down my wifes unsubsidized loans as quickly as possible instead of saving money in my ROTH IRA and deferred comp. In this economy, making >6% returns consistently seems unlikely. Plus, I'm still set up w/ a basic retirement plan via my pension (which is very well funded surprisingly). I figure I could defer some savings into paying down these student loans.

If this is correct, it seems I should be directing my $300+ reserved for extra retirement funds into paying down my wife's student loans.

What say you ?

[autoxer]

I wouldn't defer from putting the money into the Roth IRA. I don't know what the interest rate of the debt, but it would have to be pretty bad for me to stop putting money into a tax advantaged longterm investment account. Trying to wait until the market is doing better isn't a good way to invest for your retirement. You can't time the market. As long as the debt is manageable, then keep putting as much as you can into the Roth.

[autoxer]

Regarding the pension, you mentioned that you are persuing your masters degree. Are you going to be with your current company for 30 years to get the full pension or do you expect to change jobs in the future? You can take the Roth money with you where ever you go, but you may not be able to take the pension.

[vegas0012]

Specifics

Regarding the pension, you mentioned that you are persuing your masters degree. Are you going to be with your current company for 30 years to get the full pension or do you expect to change jobs in the future? You can take the Roth money with you where ever you go, but you may not be able to take the pension.

The masters degree, an M.S in Fire & Emergency Management, is really just something to further myself into a more administrative role further down the road. The fire service is slowly catching onto the benefits of education.

I anticipate staying at my current employer for my career. I only have about 2 years in, and I believe you become vested in the pension at 7 years. The pension is important to me for two reasons:

1) the head administrator was one of the talented individuals formerly running CALPERS. As such, at the bottom of the Oct 2008, our pension liabilities DROPPED to 96% funded. Currently, it's well over 100% funded.

2) I'm a top 5 city by population yet our pay is ranked around 200 in the country. As a result, we've been able to negotiate a VERY good matching program. I contribute 9% of my salary to pension, the city contributes an additional 29%.

[vegas0012]

I wouldn't defer from putting the money into the Roth IRA. I don't know what the interest rate of the debt, but it would have to be pretty bad for me to stop putting money into a tax advantaged longterm investment account.

It's 6% on the student loans.

[mikebanker]

I hate payday loan. Never again!

[GwenQ]

I wouldn't defer from putting the money into the Roth IRA. I don't know what the interest rate of the debt, but it would have to be pretty bad for me to stop putting money into a tax advantaged longterm investment account. Trying to wait until the market is doing better isn't a good way to invest for your retirement. You can't time the market. As long as the debt is manageable, then keep putting as much as you can into the Roth.

I have to agree with you, that waiting until the market is doing fine is definitely not the right way to invest for retirement. I also have Roth IRA. It's really an advantage putting money in it as it's not tax-deductible. Social Security is on its last legs, which makes the concept of finding an alternate signifies of pension savings more vital than ever. Thanks to Smart Money, here are the top five reasons why a Roth IRA can be just what the pension doctor ordered:
1. Make tax-free withdrawals upon retirement with a Roth IRA
2. Social Security won’t enable you to maintain your standard of living
3. Roth IRA beats 401k mutual funds
4. Flexibility is always nice
5. Diversity in numbers