Saving for College or Retirement. What to do?


If you are a parent that would like to begin saving for college, you may question how to prioritize your finances. Many of you with college-age kids would like to help your children but then are also considering retirement. Which is more important? Is it your child’s college savings or your own retirement? How do you save for these important expenses while continuing your debt-free lifestyle?

Have you been saving for college? In many cases, even responsible parents have not been able to put aside money for their children. If you are like many, life expenses can be difficult to meet and debt can accumulate. Certainly, you desire to and maybe even feel some obligation to help with your child’s future education. While many parents chip in towards their kid’s college bills from their own savings including retirement funds, it may not be wise to. It may seem the right thing to do in the moment, but there are considerations you should make.

Do I have Enough Saved for Retirement?

The first and foremost argument that financial experts make is that it is crucial that your retirement account is good enough on its own. They say you should never invest in sving for college if it hinders saving for your own retirement. The basic argument is that you will not be able to borrow money for your own retirement when the time comes. Whereas, you or your child can easily borrow money for their college. 

If you prioritize the college fund first and then start saving for retirement once the college savings are done, you won’t be able to cash in on the most vital years of your life. Rather, save for your retirement in the early years. You will be able to save thousands of dollars more than if you start late. No doubt about it, the experts are right. Your retirement account needs to look good and secure for your own peace of mind and safety. 

Are Student Loans Terrible?

It is common knowledge that unfortunately, the tuition costs have seen exponential growth. Unfortunately, the household income of an average family today has not seen the same growth rate. No matter how you try to save for your kid’s college, it will take its toll on your finances. Many parents consider this their duty to not let this burden fall on their children, and they instead take out the necessary amount from their own retirement plans. This will be a losing game. The smart way is to have a healthy balance somewhere in between. You cannot risk your own security in favor of your kid’s college.

Student loans are not terrible. Some pros of having your student borrowing money directly include:

  • builds credit score
  • lots of options in loan terms
  • allows for financial responsibility and learning

Taking Out from Future

This trend among U.S. parents stealing from their own 401Ks or IRAs to provide for their children’s education is growing. Since 2010, the amount that most parents have withdrawn from their retirement to pay for the college fund has nearly doubled. According to a study by Sally Mae and Ipsos, this average amount was around $2k in 2013 which saw a double hike in just two years reaching over $5k. This trajectory has been slowly growing every year since then and in 2020, it has reached over $7k. This, by all means, has been one of the negative effects of prioritizing college over retirement as it has left the older parents surviving on less when old.

Why Does Retirement Take Precedence?

It is very simple why retirement savings for yourself should have priority over college savings for your children. You will need your savings to take care of the basics:

  • food
  • shelter
  • clothing
  • medical

This will be a time when you won’t have the energy to work a job or carry out a business. In old age, you also need to think about the health care costs as these can be too high and you may need all the savings for unforeseen medical bills. The retirement savings may be the only factor that lets you live out your old age with security, comfort and peace and is an absolute necessity. There is no way around it. If you don’t save up in your prime, you’ll have to work into your senior years.

Whereas, college is solely not your responsibility. Your child may choose an affordable college or even earn a scholarship. But at your old age, you would not want to be dependent on anyone for basic necessities.

Finding the Perfect Balance

Fortunately, both retirement plans and plans for saving for college are so diverse and unique that you may be able to find the sweet spot between the two. You may be able to comfortably chip in into your kid’s college education without compromising the comfort of your retirement. These many plans make it possible to prioritize both equally. If you set aside money wisely, you may be able to strike the right balance. 

All you have to do is research on your own, get financial consultation, and talk to the experts. You should openly discuss your kid’s college education with them and state the facts out realistically for everyone. If they’re old enough for college, they’re old enough to understand the complexities of student loan, college funds, and retirement plans. A solution discussed by all and agreed upon by most is always the best approach.