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Liz Weston: Obliging Debt for Student Loans or Maximizing Pension Contributions? Yes



Q: I graduated from high school in May and did a full-time job in October, earning $ 36,000. I also work freelance and get 500 to 1,000 dollars a month. I live at home, so I do not have to pay for rent or food, which really helps. Currently, I have just under $ 18,800 in student loans at an average interest rate of 4.45 percent. I also opened a Roth-IRA.

My plan currently is to contribute $ 500 a month to my IRA for maximum use, and pay $ 700 a month for my student loans to get them out of the way quickly. Or is it better to skip the Roth and use the extra $ 500 for my student loan? That way I would be debt free if I leave my parental home next year. The stock market has not done anything since opening my account, and I read that he could do so again this year. But I've also read that it's good to just constantly contribute to an IRA if your debts are not very interesting to reap the returns on composite returns.

A: It's generally a good idea to start saving early for retirement, and do not stop. What the market is doing now does not matter. You should look at what the market is doing over the next four or five decades, and history shows that stocks outperform all other asset classes over time.

The $ 6,000 you spend this year could increase to over $ 1

00,000 at a time. You are in your 60s when you achieve an average annual return of around 7 percent. (The long-term average of the stock markets is close to eight percent.) And Roth IRAs are a very good investment opportunity because retirements are tax-exempt.

That means your other option is not a bad idea either. You are not proposing to postpone your old-age savings for years while paying off relatively low debts, which would clearly be a bad idea. Instead, you lose the opportunity to finance a Roth for a year. This is an opportunity you can not get back – but you could fully finance Roth next year and maybe use some of your freelance money for a SEP-IRA or Solo 401 (k).

Either way, you should be fine.

Q: I am 63 years old and was born in November 1955. My husband and I divorced 37 years ago after being married for 37 years. I work full-time and plan to continue until at least 70 years of age. At the age of 66, can I apply for a limited benefit from my former husband's social insurance and then move up to full capacity at the age of 70? He has always been a much higher income than me, and I'm confused as to whether I'm entitled to benefits.

A: You are not allowed to make a limited application for spousal services that enable you to claim a benefit based on the performance of a husband or ex-husband while yours own advantage grows. Congress has removed the restricted application option for persons born on or after 2 January 1954. If you apply for benefits, you will be considered as an "application" for both your own retirement pension and for any spouse's wife or divorced spouse's benefit you might be entitled to and essentially get the larger of the two. You can not change later.

Something to keep in mind: Although your own performance can rise by 8% each year, between the ages of 66 and 70, spouse benefits do not receive such credits for late retirements. In other words, there is no incentive for you to wait after age 66 to claim Social Security if the spouse's benefit is the greater of the two benefits you could receive.

The rules of social security that claim can be complicated. If you do not have a trusted financial adviser who knows how to apply for strategies, you should spend about $ 40 on a service like MaximizeMySocialSecurity.com, which can analyze your specific situation and suggest the smartest option.

Liz Weston is a certified financial planner and personal finance columnist for NerdWallet. question? Use the contact form at asklizweston.com.


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