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How to Save for Retirement with $100,000 in Debt

A 40-year old couple with two young children recently posted in Reddit’s FIRE subreddit looking for some help with their financial situation. They describe themselves as “not good with money” but they don’t want to find themselves working into their 70’s with no real retirement plan. In this article, I'll review how to save for retirement with $100,000 in debt.

Let’s start with the good news, they both make phenomenal incomes.

Monthly take-home pay after taxes and deductions.

  • Husband: $6,312 every month including side-hustle.

  • Wife: $4,578 every month.

  • Wife: also received a $12,000 bonus every year.

  • I’ll assume this is consistent and average it out to an extra $1,000 per month.

Total Monthly take-home pay: $11,890


The wife has a 401(k) with her company. She is contributing 5% of her salary to get the full company match.

Current assets

When we look at what these stellar incomes have produced in terms of assets, we can see that they have some work to do on building their net worth.

  • $31,000 in Wife’s 401(k)

  • $2,300 in Husband’s Roth IRA.

  • They also mention they recently bought a house but did not include the value.

Total investments: $33,300

Monthly Spending

As this couple freely admits, they have a lot they could improve upon in the spending’s department.

  • Mortgage: $2,300 per month

  • Car 1: $400 per month

  • Car 2: $400 per month

  • Power: $300 per month

  • Car Insurance: $215 per month

  • Water: $125 per month

  • Internet: $115 per month

  • Cell Phones: $80 per month

  • Student loan 1: $1,000 per month

  • Student Loan 2: $145 per month

  • Credit card 1: $125 per month

  • Credit card 2: $65 per month

  • Food: $1,000 per month

Total Monthly Spending’s: $6,270

Monthly Excess Cashflow (income minus spending’s): $5,620

They are currently spending more than $75,000 per year which is only possible(but not sustainable) because of their high income.


  • Mortgage: $320,000

  • Car loan 1: $7,000

  • Car loan 2: $23,000

  • Student loan 1: $101,000

  • Student Loan 2: $15,000

  • Credit card 1: $4,300

  • Credit card 2: $2,100

Total Debt: $472,400

Getting back on track for retirement

Assuming they put 20% or less down on the house this couple currently has a substantial negative net worth. Given they are both 40 and want to retire in their 60’s they have a lot of catching up to do.

Their major challenge will be the delicate balance of paying off debt while aggressively investing for retirement.

If they were 10–15 years younger, I might recommend being extremely aggressive about their debt. However, given their lack of savings and their compressed investing timeline (they are basically starting from scratch at 40) they will need to prioritize.

Priority 1: get rid of the credit card debt

The average interest rate on credit card debt in 2018 was 16.5%. It’s unlikely they will find an investment that will provide a better return than 16.5% so it makes sense to dedicate their resources to the credit cards.

Assuming the spending numbers they report are reliable (more on that in a minute) they have over $5,000 leftover at the end of each month.

If they direct all their free cash flows to the credit card debt, they should be able to eliminate their $6,400 in credit card debt in about 6 weeks.

Priority 2: Freeing up more cashflow

Clearing the credit card debt will increase their monthly cash flow by $190 per month. There are some other simple changes they could make to free up even more money to invest.

Between car loan and insurance payments, they are currently spending $1,015 per month on their cars (Not include gas, & maintenance), I know they have two young children, but they should ask themselves do they really need two cars?

I have no doubt having that the second car makes life a lot easier, but if they can get by on being a 1 car household, they will free up $507.5 per month.

Priority 3: Conduct a Detailed Analysis of their Spending.

I suspect they are actually spending more than $6,270 per month.

  • They mention they have two small children, but I don’t see any reported spending on kids’ toys, clothing, after-school programs.

  • They did not report how much they spend on gas and maintenance related to their cars.

  • They reported their mortgage payment (which included taxes and HOA fees) but they did not budget anything for maintenance. A rule of thumb is to budget 1% of the purchase price of your home for maintenance. Going by that standard they should be budgeting around $300 per month for home maintenance.

  • While they report their grocery bill, they don’t mention how much they spend on entertainment items like Starbucks, alcohol, date nights, and restaurants each month.

They could benefit from a detailed analysis of their spending habits. I suspect they spend a lot more money than they think they do.

Priority 4: Start maxing out their tax-sheltered accounts

Once they have analyzed their spending and eliminated more monthly savings, they should focus on maxing out their tax-sheltered account.

Once those accounts are maxed-out, they might consider opening a taxable investment account or investing in real estate.

With only $33,300 in retirement savings, they need to start investing every penny they can spare.

The good news is that given their impressive take-home pay of $12,000 per month, there is no reason they should not be able to catch up.

If they can reduce their total monthly spending to $7,000 and allocate $5,000 per month to investing for retirement. Using a compound interest calculator they could have $3.6 million saved by age 65, assuming a 6% rate of return.

Bottom Line

The larger our income, the more “margin for error” we have with our personal finances. Even though they are behind on their retirement savings, this couple can still get on track for a traditional retirement at age 65, IF they can make some changes to their spending habits.

What do you think? What changed do you think this couple should make to get on track for retirement before 70? Let me know in the comments.

This article is for informational purposes only, it should not be considered Financial or Legal Advice. Consult a financial professional before making any major financial decisions.

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