You can't go back and fund your IRA for 2011 after paying off your loans in 2013. I figured that even if the interest paid on my student loans completely canceled out the interest earned on my retirement savings in those years, it would be worth it in the long run. And because we've job hopped so much, we've spent very little time with access to 401ks, so I'm doubly glad I used them when I had them.
That's sound logic to back up what I was thinking, however I don't have access to a 401k through my job, so I can't take advantage of employer benefits or tax deferment. So in that case it still would not make sense not to pay off the SLs.
I'm pretty happy with the choices I've made, but I see people here with student loans at 2% and 3%, and if I'd had those, I might have done differently.
Whoa! How the heck do you get a student loan at 2% or 3%?? Mine were all subsidized and were't that good. Those must be from years ago, I guess.
The key component you're missing is risk. Paying off your student loans is a risk free (and tax free) 5.25%. Stocks are risky and volatile, so you need a higher return to compensate. Most medium term, risk free investments yield in the neighborhood of 0-3%.
As long as you have enough liquidity, I'd pay down the loans first.
Thanks. I always forget to think of loan interest in that way. That 5.25% is essentially a return I can get, versus not having them paid off at all (i.e. losing that money). However I am young and the investments would be long term probably index funds, and the avg. return I often hear quoted for 10+ years is around 7% or even 8%. Still I see your point.
What would you call "enough" liquidity, in terms of percentage of income, etc?
