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Stop Retirement Contributions to Aggressively Pay Down Debt?

I distinctly remember sitting down with my mother on the day I started my first job, and listening to her explain the importance of filling out the retirement plan packet that was just seconds away from being thrown in the nearest trashcan.

As a sixteen year old with an affinity for video games and basketball shoes, I couldn’t think far enough down the road to understand why a portion of my $4.75/hr. paycheck needed to go into an account that I couldn’t touch until I was my grandparents’ age. On top of that, I had car and insurance payments that already accounted for a large portion of my after-tax income.

Stop Retirement Contributions to Pay Down Debt?

So there I was at the age of sixteen, facing a dilemma that typically affected people twice my age: Should I stop retirement contributions while I pay down debt?

Fast forward a few years and this question is far more relevant today than it was when my total debt balance was a fraction of its current amount. These days, many millennials (myself included) are burdened by high student loan payments in additional to other types of debt and living expenses.

Although we’ve all heard the stories of people that didn’t effectively save for retirement and were forced to work long past the age they expected, the size of the obstacle in front of us (debt) and the length of time we have until retirement age present us with a dilemma to which there is no easy answer.

As you assess your particular situation, here are some things to consider as you decide whether to allocate your paychecks toward paying down debt or funding retirement savings.

Assess your debt situation

stop retirement contributions to pay down debt?According to a report by, the average student loan debt for the class of 2015 is $35,000 – the highest in history. Just to clarify, that total does not include high-interest credit cards or any other personal debt.

All things considered, this places the average millennial in upwards of $40,000 worth of debt. Now, I can’t speak for everyone but as far as I’m concerned, this is a pretty significant amount. If you subscribe to the belief that ‘all debt is dumb’, then your first inclination is likely to get laser focused and eliminate that burden as fast as possible.

Now, before you go all ‘Dave Ramsey’ let’s take a step back and look at this objectively. Would it be wise to stop retirement contributions to pay down your debt?

Simple math tells us that paying off our higher interest rate debt with, let’s say, a 15% rate, is more financially beneficial than contributing to retirement where you may average an 8% return. If this was my personal situation, I would absolutely try to tackle the high-interest debt and temporarily stop retirement contributions simply because the interest being paid on the debt is nearly double the amount earned on the retirement account. This decision is further reinforced if your employer does not offer any type of match for your contributions.

But what if your debt is not necessarily high-interest and your company does offer some sort of matching contribution? Although it is highly dependent on your situation, if your debt payments are manageable and don’t carry a high interest rate, it might make sense to make the minimum payments (more if possible) and make retirement savings your priority.

stop retirement contributions to pay down debt?What are your retirement options

Conventional wisdom says that in order to ensure a comfortable retirement, we should begin to save as much as possible, as soon as possible. By starting early, we are in the best possible position to take advantage of compound interest and any matching contributions from employers.

As encouraging as this may sound, if you are in serious debt your options are a little more limited and you might not have the ability to save as early and often – but there is still hope.

If your employer offers a 401(k) (or equivalent) and matches a percentage of your contributions, then it might be beneficial to prioritize retirement savings over paying down debt. For starters, it’s essentially free money that you receive for contributing toward your retirement.

In fact, depending on the match amount, the value could actually end up being more than any interest you would save by paying off debt first. If you factor in any tax breaks that you become eligible for by saving in a retirement account, the decision becomes clearer.

Do you really have to choose one or the other

Depending on your situation, you may not necessarily have to choose one or the other. If you are willing to sacrifice by reducing spending and increasing your income, you may be able to aggressively pay down debt and save for retirement at the same time.

Regardless of your current situation, many financial planners recommend that you contribute to a retirement account, even if it’s at a minimum level.

Obviously, you will want to direct the bulk of the money towards the most important goal while still ensuring that you’re putting something toward the other. Maybe for you this means only contributing $25 each pay period into a retirement fund while aggressively throwing every extra penny toward knocking out debt. As the saying goes, “A little something is better than a lot of nothing”.

Stay the course – Discipline is key

Knowing whether to pay down debt or invest for the future doesn’t depend solely on your priorities – your financial capability also plays a huge role. One of the primary keys is to set realistic, actionable goals and keep a positive perspective throughout the process.

As with anything, staying disciplined is also important. Remember all of those New Year’s resolutions that never quite panned out? See what I mean about discipline? Don’t let that happen to your finances.

You CAN accomplish all of your financial goals, even if at times they seem conflicting. Start by taking an honest look at your financial situation and weighing all of your options. Choose the best path for your particular situation. Pivot where necessary but remained focused on what you’ve set out to accomplish.

How do you prioritize paying down debt and saving for retirement? Are there any tips that you would like to share? 

This post was written by Kelby from

Get Out of Debt Money


My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.


  1. People have to do what they think is best for their individual situation, but personally, I would never have stopped my retirement contributions in total. Perhaps I would decrease the amount and apply the savings to debt reduction. But I would never stop and lose the compounding that occurs as you accumulate more and more in savings. I’d cut back on entertainment, clothes, eating out etc. rather than give up the retirement. You can’t stop paying in to Social Security, and certainly can’t take loans or withdrawals against it. I think the same should be true of individual retirement accounts, 401Ks etc. They are strictly don’t touch until you actually retire.

    • Nope. Even when I was aggressively paying down my student loans, I was still contributing to my 401k because I got a 100% match on 3%. It seemed foolish to let that free money slip away!

  2. If you’re getting any sort of match in your retirement contributions, then for sure you want to contribute to get that match, otherwise you’re going to come out way behind. After that amount, though, I can certainly see either option as a viable strategy. I would never make the recommendation to go one over the other as a blanket statement, but would look at each particular situation, as the individual circumstances could lead to different answers.

    • Yup, totally agree MB. I think you’re right on the money!

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