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Should I Save For Retirement or the Kid’s College First?

I’m a very linear person. I default to moving in a chronological order, doing things step by step according to a predetermined plan. So it’s confusing when trying to decide whether to save for retirement first or our kid’s college.

save for retirementOn the one hand, it’s been drilled into me that saving for retirement is important. However, I know the costs of college tuition are increasing every year with no end in sight. I’d love for my kids to graduate from college debt free and feel an obligation as a parent to help with some of my own money to make that happen.

The thinking goes that college is a nearer-term goal than retirement. That fits with a linear life narrative. Prepare for the financial situations that are coming sooner and push off financial decisions that can be made later. For most people, college costs will come before retirement costs so shouldn’t we be focusing on that first?

It seems logical to prepare for college first but I’m going to suggest today that we should do the illogical. The exact opposite should happen. Save for retirement first and college second.

Why to Save for Retirement First

There are four major reasons why we should save for retirement before college:

1. The Time Length and Cost of Each Season

The seasons of college and retirement are vastly different. By seasons I mean length of time. College lasts four years, maybe five if your child changes majors their junior year and graduation gets stretched out. Even if you have four children like we do, the cumulative length of their college experiences would be 16 years.

Retirement will last much longer than that (God willing). Given the advances in medicine that are increasing life expectancy, one could reasonably expect to live into their 80s. My grandfather recently hit 100.

Because the season of retirement is longer the cost for that season will be greater. In our family, we could potentially shell out $480,000 for 16 years of college at 30k per year. For retirement however, I’ll need $800,000 for 20 years of living at 40k of expenditures per year. Those numbers can obviously be adjusted based on individual choices and circumstances but I think they reflect a reasonable scenario.

2. Growth on Investments

This may be the biggest argument to save for retirement earlier rather than later. The growth that occurs on investments will be greater the longer the investment is active. Like any investment we don’t have a guarantee of that but the basic principal remains true. Quality investments grow in value over time.

So if I start saving for college using investments in the stock market at age 25 when my first child comes into the world, I’ll have 18 years for that to grow before I tap into it. If I begin to save for retirement at age 25 I won’t need to touch that money for at least 40 years. The extra 22 years that money is invested will significantly impact how much money that turns out to be.

3. Fewer Funding Options

How will you fund your retirement? I’m not counting on the government to help in that regard. Unless they get their act together there is little doubt Social Security will be there for me with much substance in 25 years. So that leaves it up to me as the sole source for funding retirement.

College is a different story entirely. There are many ways to fund college expenses, the three principal ones being through loans, grants and scholarships. The multiple avenues to pay for college should reduce the pressure parents feel to fund college entirely with their own money – a point that I will drive home with my next point.

4. No Given Joint Effort

The responsibility of paying for college can – and in my opinion should – be shared with the child who is attending college. They can work hard in high school to attain scholarships. They can pursue on campus work/study programs. They could get a full or part-time job to help with expenses. The burden doesn’t have to rest on parents alone.

In retirement it can’t be assumed that our children will be available to or capable of helping us financially. We’d like to think they would help financially but that’s not a given I’m willing to make. Nor would it be something I would impose on them or pressure them to do. It’s too difficult to project 40 years down the road and know what my needs will be let alone if my children will be able to help me should the need arise.

You Can Contribute to Both

In full disclosure, I am presently choosing to save retirement and college at the same time. If you plan on doing so here are some suggestions:

  1. Project how much you might need for college and then divide your allocation based on that predetermined plan. Even if it will be a lot of money for college, I’d still put more of a percentage toward retirement for the reasons mentioned above.
  1. Make sure the college savings are going into the proper investments that will give the best returns. Most likely you will want to look at some form of Educational Savings Account (ESA) for those funds.
  1. Find a cheaper college alternative in regards to tuition and learn other ways to reduce the cost of college. College can easily be done for less than 30K a year.

When working through this issue of whether to fund college or save for retirement first, it’s important to keep your long-range vision in tact. College seems like a very pressing and immediate need that we MUST take care of.

It’s really not. If we get it funded, great. If not, the kids still have options. The consequences of an inadequately built college fund will be much less than an inadequately built retirement fund.

Questions: Which are you more worried about funding – college or retirement? Do you feel pressure to save for retirement? Do you feel pressure to fund college? Will your kids be paying some of their college expenses?

Image courtesy of StockMonkeys.com

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Comments

  1. I’d prefer the education first before minding our retirement. Kids should be sent to their preferred school, and it is one of the precious gifts that parents can give to their kids. Once they are graduates, that’s the time I believe I would start saving for my retirement. Good family planning is really a factor here.
    Jayson recently posted…Building a House Step by Step – Part 1My Profile

    • If I wait to fund retirement until all my kids graduate from college I’d be 57. That would not give me enough time to build up the funds I would need. And I’d lose out on 16 years of investment growth. I don’t want to let that happen.

  2. Reading this, I felt compelled to share our experience.
    Dutifully socking away a small amount for retirement since our early 20s, then with kids came SO many more expenses, including the far off concept of post secondary education. Age 12, my oldest had a traumatic accident involving his face and his bicycle. Canada may have universal health care (not free, but a blessing with kids) however they tell you you’re on your own with ANYTHING involving the mouth! Several surgeries later and braces to keep things where they need to be while he continues to grow for several years, we have completely spent any hope of funding his college costs on his smile (still implants to do $$$). He is 17 now in his final year of high school, and all we can say is that we hope his winning smile will get him a good job while he’s going to college!
    Long story short, You can’t guess what your expenses are going to be with kids, especially active daredevil boys.

    • Kids do bring so many expenses that it makes it even harder to save for college. That’s why it’s great there are so many options to fund college. They can get through it if they are creative in how they approach it. Thanks for sharing!

  3. Great article. So often as a culture we forget that a long-term mindset usually wins. Instant gratification has taken our hearts. I’m also concerned when parents are of the mindset that it’s their obligation to pay for their child’s entire college costs. Not allowing little Johnny to help pay for his schooling (by working or scholarships) only does a disservice to the student. Thanks for the great article.
    Janeen recently posted…Raise Non-Materialistic ChildrenMy Profile

    • “…their obligation to pay for their child’s entire college costs.” The key word in there is “entire.” Even if it’s books, some fees or gas money to and from school I think kids should be responsible for something. That’s our plan even if we can fund all the tuition by the time they are ready.

  4. Both. They are both important but I put more away for retirement because that is going to last much longer. My parents helped me through college, but I also finished four years of schooling in two years to reduce costs and the fact that I just don’t enjoy school and wanted to start working. I want my daughter to value her school and pay for part as well. Nothing comes free in life and if she contributes I think it will mean more to her like it did for me. I hope I over plan and she gets a full ride somewhere. If not we’ll be ready and try our best.
    Lance recently posted…Why It Pays To Learn To Work HardMy Profile

  5. I paid my way through college (no loans). It’s not a terrific degree at a terrific college but those things are mattering less and less. I just remember seeing all of the students who didn’t care about getting good grades. Now, I’m not sure why they were so flippant but it always struck me that they didn’t realize the gravity of it because they didn’t have to pay for it themselves.

    I’ll help my kids some but they will learn the true value of education– including the monetary value!
    Mrs. WW recently posted…How did we get here? Part 1My Profile

    • “…seeing all of the students who didn’t care about getting good grades.” My guess is grades mattered more to you because you were paying for it. That’s such a valuable lesson learned. Nice going!

  6. We are in the process of doing both. I understand the arguments for focusing on retirement first; however, my hubby and I both had our college educations paid for by our parents and it made such a huge positive financial impact on our lives that it’s a priority for us to give it to our son.
    Shannon recently posted…What’s Your Sacred Cow?My Profile

    • I can respect that Shannon. It does set the kids up for a great debt-free start to life after college. Just don’t forget about yourself…which I’m sure you are not. 🙂

  7. We did both at the same time. I started our son’s college fund almost the moment he was conceived and without fail I made contributions to it every month. Sometimes it was only $25 but I made the payment each and every month. We were already maxing out our retirement funds even before we had our son so that continued as well. There are many ways to help reduce the cost of college but only one way to pay for retirement…save for it. If I had to choose, I would have gone with the retirement fund, but I’m glad we were able to do both.

  8. I absolutely agree that retirement needs to be the first priority and there is no reason that you can’t do both. We are doing both, like you, but retirement is the higher priority. Fortunately, we are on track with both. I absolutely agree that kids need to be a part of the conversation and understand not only how much college costs, but what they can and are expected to do to help lower those costs. One thing that constantly surprises me when I talk to parents is how many overlook scholarships. They assume because their child isn’t a star athlete or doesn’t have a 4.0 that they won’t qualify for any scholarships, but that’s not true. They may not get a full ride, but lots of businesses and organizations offer scholarships. You just have to take the time to find them and apply. The girls are still a ways away from college but they know we are saving for it and expect them to do their part too.
    Shannon recently posted…Tips to Hosting Meaningful Birthday PartiesMy Profile

  9. I’m glad I don’t have to make the choice currently, because lord knows it’s hard enough for me to save for retirement. But if I did have kids retirement would still be what I was focused first and foremost on.
    Tonya recently posted…A SERIOUS In Depth Interview with…um, MyselfMy Profile

  10. We do both. Not sure why so many people think you can only do one or the other, but I fund my retirement and save for college. It’s just about priorities!
    Grayson recently posted…How Gratitude Breeds SuccessMy Profile

    • I think people get so focused on the next big thing and the needs of the kids. It’s actually an admirable trait that parents are so concerned about their kid’s future. Sadly though in many cases they are sacrificing their own future and will run into financial problems in retirement because they were not a little more selfish in preparing for their own needs.

  11. Very well thought out Brian! We’re doing both ourselves as well. I think too often we make it an all or nothing approach with saving for college. Admittedly, we put retirement first and for many of the same reasons you listed but that doesn’t mean we ignore college savings at all. That said, I highly doubt we’ll be able to fund our kids’ college entirely, assuming they go that route, but we intend to help as much as we can and help them make an informed decision so as to mitigate the financial aspect as much as we can.
    John recently posted…What I Saw at Jiffy Lube Yesterday Made Me Shake My HeadMy Profile

    • There is a definite tension parents put on themselves to make college work for their kids. I think that comes from our desire for them to be better off than we are and we’d do anything to help make that happen. I think by the time college gets here we will be pretty set in helping out our kids. But I’d still like them to contribute to the cost in some way.

  12. We do both. I think that unless you have a clear answer of what is your priority, a mix is often a good way to start. Often times, you’ll find that the ‘answer’ becomes more clear or changes as time goes on.
    Money Beagle recently posted…Wrapping Up The Never Ending Paint ProjectMy Profile

  13. We intend to help our son with education expenses but not at the expense of our retirement. If he wants to attend a top tier institution in a different locale as opposed to a local college or university, he will have to foot a much larger portion of the costs.
    Kassandra recently posted…Are You On The Road To Rebellion?My Profile

    • Staying close to home does reduce the cost of college a bunch. Perhaps that’s something you could negotiate with him. He goes farther away thus increasing the costs, then he helps pay for more of it. Then again maybe by then you will want him to go away and would pay for that to happen…haha. 🙂

  14. I’m like you – very linear. We contribute to our 401k to take advantage of the employer contribution, but that’s it – we are focused on debt repayment at the moment. It makes me super uncomfortable to ignore retirement and college, but we have little money to play with. We only have $60 extra each month! And it’s about to be even less than that!
    Kirsten recently posted…Frugal Hound Meets Most Expensive Free Dog Ever!My Profile

    • You are doing it right Kirsten. Debt repayment comes before both of these in my opinion. But it is smart of you to take advantage of your employer’s match. That’s one situation where retirement investing is always worth it.

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