Your Child(ren)'s College or Your Retirement
Many of the young professionals we serve identify paying for their children’s college education as a top tier goal. Knowing how expensive that can be, the goal looms so large in their minds that they are inclined to begin saving for their children’s college expenses over contributing enough towards their own retirement savings goals. While we understand that temptation, we typically advise against it.
Here are three reasons to save for retirement first:
1. There are three ways to pay for college: before (saving before a child goes to college), during (spending current income while they are in college), and after (using loans that they or you take out). There is only one way to pay for retirement, and that’s saving beforehand.
2. If you have financial problems down the road, it's easier to tell your children, “I can't make this payment any more” than it is to ask them to start supporting you because you don’t have enough retirement savings to make ends meet.
3. If you save more money in college savings vehicles (like a 529) than you can use, there can be negative consequences. There are penalties for withdrawing funds if you aren’t using them to pay qualified education expenses, so you risk potentially losing money if your child decides not to finish college or gets a scholarship.
If you work from the ages of 25 to 65, that means you only have about 40 working years to earn and save enough to pay for 90 years of living. You can’t afford to skip 20 years of saving for your final years. Before you put everything on hold to fund your children’s education, make sure you are fully funding your retirement first.