All,
I want to start by saying that I fully think that everyone posting advice on this sub is doing so with the best of intentions. I am not questioning that in the slightest.
My issue arises out of the pay off debt vs invest advice given regularly on this sub, even in the sidebar. I think most people visiting this sub asking advice see the advice to pay off debt over 4-5 percent before investing and think "yep that makes sense." On a certain level, it does. However, I think regarding investing in retirement accounts is far more important than paying off debt with up to even 6-7 percent interest.
My reasoning for this is simple.
1) You only have a set amount you can put into retirement accounts every year. It doesn't matter if you have more cash flow to invest at a later date, because you can only put so much in.
2) The tax advantages gained by investing in Roth or Traditional is great enough that even if you are only earning 6-7 percent on your investments vs paying off a 6-7 percent student loan, you are likely coming out ahead.
3) In most cases, if the worst happens and you file bankruptcy, you keep your retirement accounts.
4) The money is mostly locked up and it is hard to access it.
Therefore I think the advice should change from "pay off all debt over 4-5 percent before investing" to "pay off all high interest debt (over 10 percent interest) before investing in retirement accounts beyond the match and pay off all moderate interest debt (over 4-5 percent interest) before investing outside of retirement accounts."
I recognize that most people coming here asking for advice cannot even grasp the concept of "do not lease a car" and "do not carry a balance on 24% credit cards", but I am talking more about advanced advice here.
Keep on keeping on guys. Would love your thoughts on the issue of if you think investing in retirement accounts is generally better than paying off 6-7 percent debt.
Edit: Just to be clear. I am not referring to a person making 75k a year with a 500k house who just refinanced his home for the third time in order to put more money into investments.
I am referring to a person making 75k a year with a 150k house and 50k in 6% student loans who is trying to decide if he should put 5,500 in his Roth or on his student loans.
In the case I just laid out, I think it is obvious to put the money in the Roth, but that's just me.
Edit2: Dangerous: "likely to cause problems or to have adverse consequences."
I'll agree the title is click-baity, Ill also raise you that definition wise, it is accurate.
Submitted January 18, 2017 at 11:00AM by kawattslaw http://ift.tt/2jKZVPQ
