Balancing Saving for Retirement and College

by TTMK on March 24, 2014 · 11 comments

save_for_retirement_or_collegeYou can always borrow for college, but you can’t borrow for retirement.

In a nutshell, that encapsulates the bottom line of the saving for college vs. saving for retirement question.  Kids have options for college, but it’s not like the options are quite there when people are older and needing money for retirement.

It’s been written before about how 2/3 of workers have less than $50,000 saved for retirement.  This is, quite simply, and eye-popping figure.  Think about how long $50,000 will really last in retirement?  Not too long, right?  Well, given that this is what so many people are apparently starting at, it makes a person wonder how college savings come into play in those situations.

Ah, but those college expenses can’t be ignored.  Tuition seems to be going up at super-high rates that aren’t exactly trailing inflation.  Plus, let’s face it:  in a competitive job market and a now global market for talent and skills, it’s different than a generation ago where someone with a high school diploma and willingness to work could carve out a middle-class lifestyle.  Education sure seems more important now than ever.  With a master’s degree, I’m just one of what’s likely millions possessing just the same accomplishment.

So if presumably so many people aren’t able to save, and education is getting more important and more expensive, what should a person do?  As a parent, what do you prioritize?

Well, there is no suspense here for my opinion as I’ve stated it above.  Now, I do think that if people can balance both, then that makes sense.  After all, who doesn’t want to give their child a good foundation in life?  As a big proponent of education, and someone who views kids as the most important responsibility in a parent’s life, I see the value here.

But apparently, not everyone is in a position to fully put their kids through school.  Therefore, children have to make the effort to earn the money to pay for their own education, especially in situations where their parents can’t afford it. Every university will have a list of available scholarships, grants, and loans on its website, making it easy for students to take responsibility for their own education. In addition, many schools offer tuition awards to successful students. Those who earn these awards will have their tuition costs reduced the following year, alleviating some of the financial pressure that is associated with putting a child through university

As hard to imagine as it may seem for many people, it’s not the norm for the general populace.

I think that if someone is in a less than favorable position when it comes to their own retirement savings, they really need to be sure to focus on those savings as a priority.  Then, they can do everything within their power to help instill values of hard work and determination into their kids.   Choosing a school that makes financial sense, while limiting student loans, can be a huge help.  Whether its scholarships, living at home, or working while going to school, there are options.

Again, I’m not saying that all people shouldn’t help to pay for their children’s college educations.  That would seem silly, at least to me.   People who can afford to pay their kids educations in full are really doing well by them, and setting them up nicely to get a good start in life.

However, when parents are not going to be able to afford their own retirement, they have to prioritize and balance.  For those folks, I say that retirement comes first.

Okay, what do you think?

What is your view on retirement savings versus college savings?

{ 11 comments… read them below or add one }

Kathy March 24, 2014 at 9:06 am

We did both but saving for retirement always came first. Then we saved for college. Having just one child helped. I started his college fund as soon as I learned I was pregnant and never missed a month of contributing. Sometime during a lean month it was only $25 but we eventually got up to $750 a month AFTER maxing out retirement accounts. Son graduated with Master’s Degree debt free and we retired at age 55!

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TTMK March 24, 2014 at 11:48 am

That’s great that you were able to do both. Your approach makes sense in that you first handled retirement and then addressed college. Nice work, and a good example to follow!

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Kasia March 24, 2014 at 3:26 pm

This depends on your current situation and where your priorities lie. Both retirement and a college education are important. If you plan on having kids saving for their future should be looked at from the very beginning. Even a few dollars a week can become a significant sum by the time they go to college if you started putting the cash away from their birth that way you’re not losing out on the years of compound interest.
Retirement is important too but it’s money that cannot be accessed until you actually retire. There are other ways to save for retirement like investing directly in shares or property, which could later on be used to either fund your retirement or help your kids get through college, or both. At least then the assets are accessible and can be turned into cash when required, because you never know what surprises or opportunities lie ahead. For me, having most of your cash locked away in a retirement fund when retirement is 20 or 30 years away just doesn’t make sense.

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TTMK March 25, 2014 at 6:01 pm

Compound interest is a big deal, and it can impact one’s finances in so many ways. Yes, college savings is another good example of how small amounts early on can grow quite a bit over the years.

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The Thrifty Issue March 24, 2014 at 7:56 pm

We won’t be paying for our kids college. We plan on retiring before they get to college anyway and have multiple income streams but we have a very different system to help kids pay in Australia, compared to the USA.

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TTMK March 25, 2014 at 5:59 pm

I’ve come to learn that things are different over there than here where I am in the U.S. Paying here generally involves spending now or spending later via loan repayment.

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Mr. Utopia @ Personal Finance Utopia March 25, 2014 at 12:02 pm

“You can always borrow for college, but you can’t borrow for retirement.”

But, if you borrow too much for college, it’ll make saving for retirement extremely hard!

My kids are ~16 years away from starting college, so saving for that isn’t really a concern for me. Our focus is on retirement savings and will continue to be. To be honest, I don’t think we’ll ever do a college savings plan. My parents didn’t and that didn’t stop me from obtaining an MBA from a top ranked school. I’ll be willing to help my kids out financially when they’re in college, but I most certainly won’t foot the entire bill. I don’t think that teaches responsibility at all. A little bit of college debt isn’t a bad thing…as long as the amount borrowed doesn’t get out of control.

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TTMK March 25, 2014 at 5:58 pm

Everyone has to do what’s best for them, and it sounds like you have a plan and philosophy in place. I too got an MBA from a ranked school, and yes – I did borrow to do it. Paying off that loan was a great feeling!

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David March 25, 2014 at 7:18 pm

Very interesting. I am not shocked that 2/3 of the people haven’t saved for retirement. There are so many other expenses that the average person doesn’t have enough interest in planning ahead.

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Daisy March 25, 2014 at 8:40 pm

I don’t know that I would automatically even pay for my kid’s college, in it’s entirety, but I think I would save for it just in case. I put a high priority on saving for retirement; to me, it makes no sense to put college ahead of retirement because there comes a point at which you physically cannot work any longer. When that point comes, it’s important to be financially prepared. Kids can always work and save and get scholarships, or, worst case scenario, take out loans for post secondary.

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jim March 26, 2014 at 2:06 am

We saved for our kids’ college educations while saving for retirement. Seeing them graduate debt-free has been one of our greatest joys. We paid for all of their undergrad education and it didn’t make them spoiled, lazy or ungrateful. On the contrary. Our eldest spent 10 years living very frugally and with no school loans/car payments etc, she is now able to be a sahm and they’re living very, very well. Her peers are still struggling under the weight of student loans. If there’s anyway you can fund your kids’ college I think you ought to do it. There may not be any loans for retirement, but the older you get the easier it is to live very frugally which increases your ability to fully fund your retirement.

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