Q. How should I invest in order to pay off student loans and save for retirement when I’m 55?
First, we need to separate your question into two issues: (1) paying off debt, and (2) investing. Earning money on your investments typically takes a lot of time…..certainly more time than you’d want your student loan to remain unpaid!
Paying off your student loan should be addressed as a part of your budgeting process. If possible, focus on eliminating the debt first (see item (D) from the previous question for some guidelines) before investing for the long-term. The interest savings from paying off the student loan would probably exceed what you’d earn on your investments in the short run, unless you were willing to invest in risky asset classes. I’d recommend taking the guaranteed interest savings over hopeful short-term gains in your investments!
When you do begin investing, as mentioned above, first understand your risk tolerance then begin to select your investments. Keep your costs low, stay diversified and keep your tax bill as low as possible. I love low-cost index funds and they are how I invest. Here are a few posts that may help:
- My Top 10 Investing Fundamentals
- My Investing Strategy
- Are You Gambling or Investing
- Investing Control – You Aren’t Powerless
Remember: Investing is for the long-term. Keep your focus on the long-term goal, not the short-term churning in the stock market.
Early retirement is possible, but it will take a long-term commitment. Be sure to avoid “lifestyle creep”! Live below your means now in order to allow you to save a higher percentage of your current income, and commit a large portion of any future pay increases to long term investing, not present day consumption!
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.
If you need confidential financial coaching for your particular situation, please contact John for a no-cost, no-obligation discussion of your needs.