Should I Save for College or Retirement?

As parents, we want the best for our children. We work hard to provide opportunities for them so that they can start their lives a step ahead of our own as they grow up, and we believe these opportunities begin with providing a good education. Naturally, as loving parents, because we give so much to our children, a question which often arises in client meetings is, “should I save for my children’s college education or should I save for retirement?”

Both saving for college as well as saving for retirement require a huge financial commitment on our part. Unfortunately, when we look at what we have left over after paying for life’s necessities, we are oftentimes forced to make a decision between saving for one and saving for the other.

Saving for college:

Parents who choose to save more of their money for their children’s college costs have common thoughts. The first is retirement is far into the future compared to the more immediate need of having to pay for college. The second is if they were to save for college, their children may graduate debt free (and thus, possibly start their lives a step ahead of the previous generation).

In theory, that may sound great, but here are some of the challenges:

1. Even if your child graduates debt free (from a student loan), is he really going to be financially responsible by not having any consumer debt? If you were to think back upon your own experience, did you fall into consumer debt while in college OR did the debt occur after you started working?
2. Assuming your child graduates debt free and is financially responsible throughout his college career, what if he can’t secure a job that will cover the bills? Sure he can move back home and live rent free, but could you see how he might need to ask you for some financial assistance if he isn’t working?
3. What if he goes back for graduate school? Who’s going to pay for that? Your immediate response could be “well, he’s on his own at that point”, but wouldn’t he need to take out a loan for grad school and thereby negate your initial intent of not having debt when he finishes school?

Saving for retirement:

Because of the aforementioned challenges, when faced with choosing between one and the other, it often makes more sense to save for retirement rather than to save for college. Many parents who choose to save more of their money for retirement realize that they are on their own, and they don’t believe social security will be enough to cover their cost of living in their retirement years. While these parents may put some money into their children’s college savings accounts from time to time, they realize that in order to take care of their family, they need to take care of themselves first. After all, if they don’t have enough saved up for retirement, the support they may need could ultimately fall on their children’s shoulders.

Could saving for retirement over saving for college present challenges? Possibly. Saving more towards retirement means that you will have less financial resources to tap into when the time comes to pay for college.   However, keep in mind that your child can borrow for college, but you can not borrow for retirement. Is there any scenario where saving for college may make more sense than saving for retirement?  Those who have a pension may say yes.

A good way to make an informed decision and ultimately determine which route to take going forward is to calculate how much money you will need to retire and compare that with a projection of your current retirement assets. Here is a link to a former blog post I wrote about how much money one may need in retirement. http://bit.ly/1LS52Kh.  If the numbers show that you will be ok, then at that point, you may want to direct your additional savings towards college. However, if the numbers show that you will have to cut back significantly on your retirement lifestyle, then you may want to consider directing your additional savings towards retirement. For help in determining which choice makes the most sense for you, feel free to send me an email or give me a call.