Should you save for retirement while getting out of debt?

To contribute or not to contribute?

That is the question when trying to pay off debt. This is a question we battled with when I started working again. The financial experts are all over the place with this question. Some folks are adamant that you should not contribute while you are trying to get out of debt. Others say you should. So what should you do? Let me take you through my thought process.

Most people think about time. How much time can I afford to not make retirement contributions? For me, it wasn’t so much about time, since I knew how long it would take to pay off our debt as long as we stayed intense. For me, it was about other benefits and our ability to keep traction on our plan.

Do you have time?

Can you pay your bills? 

You should never invest if you can’t pay your bills. It doesn’t make sense to borrow money to pay your monthly bills so you can put money into your retirement plan. Too often I see people do this, just to end up taking money out later to pay off debt. If you take money out of a retirement plan, you will pay a 10% penalty plus your tax rate. Now you are further in the hole than you were before!

Does your company match 100%?

If you work for a company that matches your contributions, you are missing out on part of your compensation package by not contributing to your retirement plan. When a company determines how much to pay you, the company factors in the maximum cost of benefits (health insurance, retirement, life insurance, etc). Any benefits you do not take advantage of are savings to the company. I hate leaving that money on the table.

I have been very fortunate to work in an industry with incredible retirement matches. Over the last few years, if I put in $1, the organization puts in $1.60 or $1.80, up to 5% of my pay. That’s some serious money to leave on the table. I’m making 160% to 180% on my money instantly.

Are you making good progress paying off your debt?

If you are having trouble getting traction on your debt payment plan, would stopping your retirement contributions help you make some traction?

If you are putting $100 a month in your retirement plan, you would probably have an additional $85-$90 per month after taxes to put toward your debt. That may be the extra boost you need to start getting some traction, especially if you have a lot of smaller debts.

Making the decision to stop your retirement contributions means you need to get a fire under your ass. Generate some extra income and slash your expenses so you can get some breathing room and get that debt paid down. This should not be a 10 year plan. This should be a 2-3 year plan, depending on how much debt you have. You need to get the mess cleaned up so you can start saving for your retirement and living your dreams. No cable. No vacations. If you are willing to sacrifice your future, you need to sacrifice right now.

We have slashed our expenses and both do side work to generate extra income. Each month, 50% – 60% of our take home pay goes to debt repayment. The contributions that I make to my retirement plan (after taxes) is 1% of our take home pay. By making that retirement contribution, I decrease our debt payoff by $116 per month. That also means that I have $455 per month going into my retirement plan (including the match). The $116 is not going to move our debt free date but the $455 will move up my retirement date.

Is there a correct answer for everyone?

That’s the easiest question of all because the answer is no. Everyone’s situation is different. You need to look at your situation and determine what is right for you. If you need help making this decision, leave a comment or send me an email at

Are you contributing to retirement while getting out of debt? Does your employer match your contributions? 


Questions answered: 401(k)’s, Roth IRA’s and becoming a CPA

I got a couple questions from Kas and thought they would be better answered as a blog post than just in the comments section. If you ever have a question feel free to post on the blog or you can send an email to kristin at klingtocash dot com.

1) I just now have enough in my 401k for me to actually want to try to do more with it. Do you have any sites that would easily explain to me what the best sorts of investments are? What exactly is a Roth IRA?

Congrats on contributing to your 401(k). Unfortunately, if your 401(k) is with your current employer, you must keep it in their 401(k) plan. You are limited to the investment options they allow. You can however check on their funds on a site like Morningstar. This site independently rates the performance of stocks and mutual funds. The site also tells you what the fund actually holds (bonds, stocks, international, etc), so you can have a good balance of funds and not have all your eggs in one basket. I would also check with the company that administers your 401(k) plan to see if they have a risk tolerance questionnaire you can fill out (there should be a phone number on your statements). By answering a few simple questions, you can gage how much risk you are comfortable with. I, personally, am a very agressive investor with my retirement funds, but I have a lot of time to ride out the market.

There are two types of Individual Retirement Accounts (IRA’s):

A traditional IRA is a retirement account where you put the money in tax free now. Therefore, when you put money in a traditional IRA, you get a tax deduction now. When you take the money out at retirement, the money is subject to federal and state income taxes, just like wages are. With a traditional IRA you are required to start taking money out of the account, called a Required Minimum Distribution, at age 70 1/2.

A Roth IRA is just the opposite. You pay taxes on the money you put into the account today, but it grows tax free and you’ll never pay taxes on that money again.  There are no required minimum distributions required.

There are income limitations on both accounts, so check with a financial advisor or your accountant to see if you can open these types of accounts.

2) I have a friend who would like to try being a CPA. Know any good books or sites for her to look at to make sure it’s what she wants to do ?

The best thing for her to do is talk to CPA’s and see what they do. Each job I’ve had has been different. Plus, there are CPA’s who work in tax, audit, private accounting (internally for corporations), and in a variety of other jobs. She should contact her state society of CPA’s to see if they have a pledge program for college students. She should also see if her school has an accounting club (sounds boring, huh?). The last thing I would suggest is for her to get an internship in an area that she thinks she might be interested in. Internships are great experience and can really help you decide if this is really what you want to do for the rest of your life.

I don’t really have a “typical day”. From January to April, I’m tax, tax, tax. I eat, sleep and breath taxes. From May to December, I work with my clients on budgeting issues, payroll taxes, and training. I am a Certified QuickBooks ProAdvisor, so I work with a lot of businesses to train them to use the software, clean-up their books and setup and reconfigure their company files. Much of what I do is face-to-face with clients. I’ve had jobs where I didn’t have any interaction with clients. There are opportunities out there for all types of people in accounting. It’s a great field and there is currently a shortage of accountants. I love my job and I wouldn’t go back to working for someone else unless I absolutely had to.

Investing in your retirement and saving for your future

I’ve been watching the market, as I’m sure many of you have, wondering how low it will go.  The only money I have is in the market, since we are not in a position where we have excess money to invest. I am not a financial planner and my advice should not be relied upon by everyone, but this is where my money would go.