First of all, if you are asking yourself these kinds of questions at all, take a moment to pat yourself on the back. Just thinking about these things put you miles ahead of eight out of ten people in this country, and if you are under 30, you are probably miles ahead of more like 10 out of 10 people. Good job!

The right answer is, you need to do both. J.D.’s popular financial blog Get Rich Slowly posed this same question earlier this month and concluded that while from a strictly dollars and cents perspective paying down the debt makes more sense,

…there’s more than math involved in this decision. Building retirement savings can be a powerful motivator. Just getting in the habit of setting money aside is a valuable skill itself. Although there’s a cost involved, I wouldn’t say that it’s wrong to save for retirement while also repaying debt.

Indeed, while paying off debt should usually be a top priority (except in the case of certain kinds of debt that yield tax advantages, but we’re not going to go there today), paying off debt instead of saving for retirement is risky. The farther away from retirement you are, the riskier it is.

Why?

Let’s say you are 25 and you have maxed out your VISA card and owe money on a student loan to the tune of $200 each month. Even though your new employer matches your 401K contribution up to 7% of your gross pay, you pass on that because you really need to pay off your student loans and that credit card first. You figure, “I’ve got plenty of time to save for retirement. I’ll do that when I’m out of debt.”

That may make sense superficially, but if you look closer it makes no sense. Say you make around $32,000 a year and can count on a 3% annual cost of living increase in your wages or salary. You decide to contribute the 7% to your 401K right off the bat so you can get all the matching funds available. Congratulate yourself for doing this, because you just gave yourself a tax-deferred raise of $2240 a year, just by deciding to contribute. If you keep your contributions at 7% and earn an average of 8% on your invested 401K money, by the time you turn 65 you will have saved $1,210,295.

Do you think you could retire comfortably on one and a quarter million dollars? I think there’s a good chance you could even adjusting for inflation, and not only that, in your first year working this will cost you a whopping $43 a week, roughly the cost of a movie out followed by a burger and a couple of Mojitos. After a few paychecks, you won’t even miss that $43. You’ll forget it went anywhere at all.

Now let’s look at what happens if you wait. Instead of starting your 401K and getting the most matching money out of your employer possible right from day one, you wait until you’re 35 to start saving for your retirement. Your student loan is paid off all right, but now you have two kids, a mortgage, two car payments, and three credit cards with balances instead of just one. So you really can only spare about 3% of your paycheck, but you’ve been promoted a time or two and now you earn $45,000 a year.

When you hit 65, in the second scenario, you will have all of $305,754 to retire on. Nothing to sneeze at, but over a million dollars sure would be nicer. Even if you kick it up to 7% at 35, you’re looking at a retirement nest egg of about $1 million even and now it’s going to sting because you haven’t been saving and you feel like you can’t afford 7% at all. If you’d been contributing 7% all along, you wouldn’t feel oppressed by it, but coming as it does when everything else is going out, it hurts.

One of the biggest financial mistakes people of all ages, but especially young people, make is passing up 401K employer matching funds. The younger you start, the bigger that nest egg grows. What’s more, if you build up your 401K early on, it makes it easier for you to get a mortgage approved, and also just about any other kind of loan approved. You can even borrow from your own 401K (not usually a great idea but it’s good to know it’s there if you need it), and in certain extreme situations you can in fact get at the money without penalty.

Bankrate.com has some cool financial calculators you can play with to determine your retirement savings given different matching fund scenarios. It’s a good idea to fool around with these as soon as you can, but if you’re already approaching retirement, it’s still better to do it late than never.

The truth is, if you start saving for retirement as soon as possible and learn to live on what is left you’re not as likely to pile up debt in the first place. I strongly believe that socking away as much as possible is the best approach, because if you pay yourself first, you have that money. If you wait until later, well, when is ‘later’ exactly? How many things (tell the truth!) have you done successfully that you started ‘later’?

Not many I’ll bet.

‘Later’ is what we tell ourselves and others when we don’t want to do something at all or don’t want to have to think about it. As more and more employers gut their pension plans or drop them altogether, saving for retirement is becoming more and more vital. Social Security is looking shakier than ever, and even if it’s still around when you retire, it’s not likely to be enough to feed the cat and you both. One of you will have to go if you haven’t made other plans.

You can pay down debt and save. Even if all you can afford is $10 over the minimum payment on your cards and an occasional lump sum extra payment, you can do it if you plan it out and stick to your plan. Various websites offer debt repayment calculators that allow you to plug in your exact debts and interest rates, what you can afford, and when. The calculator will then spit out a plan for you and tell you exactly when the debt will be gone. More on that in a later post.

In the meantime, save for retirement, save as much as you can as early as you can. Feed that pig.

You’ll be glad you did.