OUR READER
Who: John Boesman, 46
Where: Olney, Md.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Question: Should I suspend my retirement-plan contributions until I’ve paid off $22,000 of debt?
John, a police commander, quit using his three credit cards, which have rates ranging from 13.99% to 19.24%, and is determined to erase the debt. His idea is to stop deferring $260 a month into his 403(b) public employees’ retirement-savings plan and pay it and any overtime to the card issuers instead. “I think it would be counterproductive to try to build my 403(b) when I’m paying about $300 a month in interest on the credit cards,” John reasons. But isn’t it a mistake for a 46-year-old to interrupt retirement contributions? John expects to retire in five or six years and doesn’t know how much he’ll earn in a second career or whether he’ll have access to another retirement plan.
QUIZ: Are You Saving Enough for Retirement?
As a patrol shift commander in Prince George’s County, Md., outside Washington, D.C., John could retire next year. But he plans to stay on until 2016 or 2017 to qualify for a larger pension. His pension should equal 80% of his salary during his final two years (not including overtime), which he expects to be a little over $100,000. The police pension has an inflation adjustment, but it’s subject to contract negotiations. As pensions go, his is more secure than most. But he still intends to work elsewhere because he’s raising a son, Alex, 12, and because “I can’t sit and do nothing when I retire.”
In addition to debt repayment and retirement, John has a third claim on his money: education. He’s contributing $4,000 a semester (matched by his former wife) for their daughter, Amarillis, to attend college. John also hopes to start a college fund for Alex.
Setting priorities. John’s is a classic case of a middle-class family juggling education, retirement and daily expenses. The conventional advice is to keep up your retirement contributions if your employer offers a match; otherwise, you’re throwing away free money. The county doesn’t match John’s 403(b) deferrals, so all he would lose by dropping the $260 contributions would be tax breaks on his current income and the tax-deferred earnings from the investments. Given his generous pension, continuing small contributions would not add much to John’s overall retirement income.
But an additional $260 a month on his credit card debt would make a big dent, says Bonnie Sewell, of American Capital Planning, in Reston, Va. At the rate John is paying down his debt, he’s decades away from erasing it. Sewell recommends he roughly double his current $300 payments. If John can refrain from new charges, a payment of $600 a month would wipe out the $22,000 balance (at 15% interest) in a little more than four years.
It’s best to have a disciplined plan to extinguish that revolving debt. Craig Larsen, of AHC Advisors, in St. Charles, Ill., says John should use the “snowball method.” He should make extra payments on the card with the lowest balance until it is paid off. Then he can focus on the second account and eventually the third. As John chips away, he should watch for 0% balance-transfer offers. Even though there may be upfront fees, and interest rates could shoot up after six months or a year, it’s worth a try.
-
Stocks Chop as the Unemployment Rate Jumps: Stock Market TodayNovember job growth was stronger than expected, but sharp losses in October and a rising unemployment rate are worrying market participants.
-
Should You Renew Your CD?With rate cuts impacting earnings, we examine if now is a wise time to renew CDs.
-
7 Ways to Plan Now to Save on Medicare IRMAA Surcharges LaterUnderstand the critical two-year lookback period and why aggressive planning before you enroll in Medicare is the most effective way to minimize IRMAA.
-
Amazon Resale: Where Amazon Prime Returns Become Your Online BargainsFeature Amazon Resale products may have some imperfections, but that often leads to wildly discounted prices.
-
457 Plan Contribution Limits for 2026Retirement plans There are higher 457 plan contribution limits in 2026. That's good news for state and local government employees.
-
Medicare Basics: 12 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
The Seven Worst Assets to Leave Your Kids or Grandkidsinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2026SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $70,000 in 2025, and up to $72,000 in 2026.
-
Roth IRA Contribution Limits for 2026Roth IRAs Roth IRAs allow you to save for retirement with after-tax dollars while you're working, and then withdraw those contributions and earnings tax-free when you retire. Here's a look at 2026 limits and income-based phaseouts.
-
SIMPLE IRA Contribution Limits for 2026simple IRA For 2026, the SIMPLE IRA contribution limit rises to $17,000, with a $4,000 catch-up for those 50 and over, totaling $21,000.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
