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Ask Money

Don’t pay off student loan

Chris Farrell Nov 30, 2011

Question: My wife is retired at 60 and I am 61 and still working. I make $180,000 a year and my wife has retirement income of $1,800 monthly. She has about $350,000 in a retirement account and I have about $1.2 million in 403(b) accounts. I will also get a defined pension of $140,000 per year in addition to our 403(b) accounts. I am still saving about $1,500 per month to 403(b) in addition to 13 percent that my employer and I contribute.

We have a student loan for our daughter of about $120,000. Should we use our retirement funds to pay it off? Our house will be paid off in 5 years and we have about $20,000 in revolving debt. Please advise. Thanks. James, Houston, TX

Answer: You may not like my answer, but I’m wondering why you’re paying off your daughter’s student loan. Shouldn’t she pay it off, or at least most of it? 

I’m assuming she took on the debt to advance her career. So, even if she’s going through some rough times with the current economy, the payoff will come over her lifetime of earnings. Your remaining income-earning years are relatively short compared to hers. I imagine you and your wife could use the $120,000 in your elder years. 

You appear to be in good financial shape otherwise. You and your wife are good savers. My suggestion is to focus on getting rid of your existing debts over the next few years, so that you own your home free and clear and you’ve eliminated all the revolving debt. 

That said, parents often want to help out their children financially. Lots of parents these days are easing student loan debt burdens somewhat by making payments to tide over a young adult child. If that is what you want to do, I would make those payments out of current income rather than retirement savings. I’d let the latter continue to compound.

Again, I would still recommend that she make the bulk of the student loan repayments, assuming that she’ll be able to during her career.

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