While it may seem like paying off your debts should always be your number one financial priority, in some situations that may not be the case. You are likely going to want to retire at some point in your life and neglecting to put money away for your retirement while you are young could be a huge mistake. In fact, according to NerdWallet, not putting enough money away for retirement could actually end up costing you more in the long run.
For starters, there are tax issues to consider. The interest that you pay on things like mortgages and student loans is often tax deductible and the money you contribute to your retirement fund reduces your taxes. Therefore, paying off your debt can actually increase your tax liability in some circumstances.
In addition, the earlier you start putting money away for retirement the better. If you aim to have $1 million to retire on, but don’t start saving until you are in your 40’s or 50’s, you will have to set aside a much larger amount of your income in order to reach that goal. Whereas if you start dedicating money to your retirement account in your 20’s or 30’s, you will not have to sacrifice as much of your income and can still meet that same goal. Plus, since retirements accounts are usually investment accounts, contributing money it to earlier gives your balance a better chance to grow and possibly even exceed your initial savings goal.
Finally, many companies who offer 401(k) accounts to their workers will match contributions made by the employees. If you work for a company that offers this benefit, it may be unwise to put off contributing to the account since you lose the potential to take advantage of your employer’s matching contributions.