Is It Better to Pay Off Debt or Invest Going Into Retirement?
Play • 23 min

Our topic on this episode of the Ready for Retirement podcast is how to handle your debt and investments before retirement. It seems like there is a constant tension between paying off debt and contributing to investment accounts when you have extra cash flow. How do you know which is the right decision in the long run?

James outlines several crucial considerations as you develop the strategy that will work for you, starting with understanding the specifics of the debt you are paying off and taking a look at your actual cash flow to see how quickly you could pay debt down and how much you have available to invest. It is also important to keep in mind all of the places you could have your money, from contributions by you and your employer to retirement and HSA accounts to paying off debt. While it might seem like these decisions are black and white, there are also behavioral aspects that impact how aggressively you will pursue your strategy.

It is also imperative to keep in mind the volatility of the market and plan out some contingencies for sticking to your retirement plan if the market conditions are not ideal. Research has shown that starting at a 4% withdrawal rate is typically sufficient to avoid outliving your money but sticking to that safe withdrawal rate may not always be easy. Overall, the biggest consideration is asking yourself what will bring you the most peace of mind in retirement and how to structure your pre-retirement decisions to align with the retirement you want.

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