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Pay off Debt or Maximize Retirement Savings?

NEW YORK (MainStreet) — The message has been hammered home time and time again: save for retirement -- you – must -- save – for – retirement. Americans are saying, "Message received." And since the financial collapse, there has been a major shift in priorities among the so-called "mass affluent." Retirement saving is now the top priority of 39% of Americans, followed by paying down debt (26%), according to a Bank of America Merrill Edge report. This is a complete reversal since the 2008 money meltdown.

Somehow, we're placing a priority on saving for retirement over paying off debt. But won't the financial experts say we've got it all wrong? Aren't we supposed to pay off the debt -- and then start setting aside retirement savings?

You come in here with a skull full of mush

"Depends on the debt," says Shane Fischer, an attorney in Winter Park, Fla. "If it's a low interest rate debt that is tax deductible, why not save for retirement first? You get the tax benefits of retirement contributions with the tax write-off of the low interest on the debt. And since you are limited to the amount of 401(k) or IRA contributions you can make every year, why not maximize those contributions first? Additionally, if your debt burden forces you into bankruptcy, your 401(k) contributions are protected from creditors. So if you're going to declare bankruptcy, wouldn't you want to keep as much money as you can?"

Fischer is "thinking like a lawyer," as John Houseman portraying crotchety Professor Kingsfield so famously spewed in "The Paper Chase." But what do the financial advisors say?

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