Pay Down Debt or Save For Retirement?

Available for Interviews: Chris Janeway

Chris Janeway is Founder & CEO Fourth Point Wealth and coaches investors throughout southern CA.  He is also a national speaker, financial coach and an advocate for financial literacy.

What Chris Janeway can say in an interview about
Debt & Saving for Retirement:

• • This seems to be one of the most highly debated topics in personal finance. Most financial advisors will tell you that paying down your high-interest rate debt like credit cards is a priority, but that you should invest and pay the lower interest debt, especially a mortgage, over time.

• • On the other side of the coin, you have those like Dave Ramsey, who promote the debt snowball approach. This suggests paying off your smallest piece of debt first and working your way up. Outside of a 401(k), he doesn’t want you investing at all until all your debt but the mortgage is paid off.
  • The answer can be difficult as not everyone’s credit scores are alike and, certainly, not all investors are skilled at managing their portfolios. The reason high-interest debt should be targeted is it’s difficult, without substantial risk, to out-perform that rate of interest on your investments. Conversely, if you refinanced your mortgage over the last couple of years, you could be in the low 3% range. This is considered easy to outperform with a moderate portfolio.
  • You need to know what works for you. If you fear market volatility and have trouble sticking to an investment plan, there’s no good reason to try and invest until the debt is paid. If, however, you’re disciplined and/or work with a professional advisor that can help guide you properly, you can budget to invest your money instead of racing to pay the low-interest debt off.
  • Let’s look at the example of a mortgage. If I have a 400,000 loan for 30 years at 3.5%, my payment each month is $1,796.18 per month. If I have the budget to add another $250 to that payment for all 30 years, I save myself 5 years and 9 months on the loan and $53,401.29 in interest payment. This is a major success, however, if I had invested that same $250 per month for the same time period and achieved an average of 8% return, I’d have $203,240 in my account.  
  • That math makes it look simple, but achieving 8% takes discipline and many aren’t able to do it properly for 24+ years. Get help from an advisor who can understand the way YOU think and feel about money for the right advice that fits your family.

 

When Chris is away from the office, he loves to golf, coach youth sports, and enjoys spending time outdoors with his wife, Katy, and their sons, Brennan and Graham.