Save For College or Retirement

by Jon Dulin

Save For College or RetirementI was with some friends the other weekend and we got on the topic of personal finance. One couple was talking about saving for their soon-to-be child’s college education. I was happy that they were thinking about this and coming up with some strategies as to how to save the money. But when they started talking about cutting back their retirement account contributions in order to fund the college savings account, I was saddened. It begs the question: save for college or retirement?

Save For College or Retirement

I don’t know how or when it started, but somehow, the idea that you have to go to a top school in order to get a job has become the way. Regardless of what you want to do in life, you must go to a prestigious college that is going to cost you $70,000 per year. I don’t buy this. You can get a great education at a state college or even start out at a community college and then switch to a four-year school.

I think that college is important. You learn a lot, not only in what you are there to study, but also in life as well. It helped me at least become who I am today. Without learning some of the lessons I did, who knows where I would be today.

I plan to help make college affordable for my kids by investing in a 529 and taking advantage of other deals, like the Upromise World MatserCard. But I won’t sacrifice my retirement in order to do so. If my kid runs out of money in college, there are student loans to fall back on. (And before they even get to loans, scholarships and grants should be looked into first). If I run out of money in retirement, I have nothing to fall back on. Unless you count my kids, but I would feel like a burden on them and don’t want to do that.

Even though I am comfortable with my kids taking out student loans, the loans taken out have to be reasonable. Otherwise, the opposite occurs: they cannot afford to live on their own because of so much student loan debt and become a burden to you. Suddenly, good debt becomes bad debt.

So what is the solution? Ideally, you continue to save everything you can for your retirement. Anything extra, you use to fund their college education. When I was growing up, all of the money I received for Christmas and my birthday from my grandparents was invested for college. It may seem like $50 here and there isn’t much, but when you add the compound effect of time into the mix, the money grows.

Final Thoughts

As I re-read what I wrote, an interesting thought came to me: what if your child comes to you and says they want to go to Harvard and major in Communications? What do you do? (Note, I’m not picking on communication majors. I am trying to make a point that the cost of attendance at said school is much higher than the salary the person is expected to make once they graduate.) I’m not sure what I would do in that situation. I think I would have a talk with them to explain the debt versus anticipated income possibilities with their choice.

What are your thoughts? What is you priority, save for college or retirement? What about if they want to go to an Ivy League school for a low salary major?

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{ 11 comments… read them below or add one }

Daisy @ Add Vodka April 25, 2012 at 5:43 am

I paid for my entire education myself, so I can definitely say my retirement will come first, and THEN my kids education. I'll definitely help pay for it, but I doubt I'll pay for it all – it's so important for kids to understand that they have to work for things.
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MoneySma April 25, 2012 at 8:59 pm

That's how I view it. I'll help out, but they need to understand the value of a dollar and have to work for things. Too many people expect things to be handed to them.

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Modest Money April 25, 2012 at 8:08 am

I definitely agree that it is unnecessary to go to the very best colleges. You can get a quality education at most schools without having to spend nearly as much. What you do with your career after that comes down to how hard and how smart you work. Getting saddled with huge student loan debt just provides extra challenges to overcome.

As for retirement savings, yes you should keep saving for that and not put your child's education way ahead of it. You want to help them out, but it shouldn't be at the expense of your own future. They don't need their entire education paid for to build a successful career.
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MoneySma April 25, 2012 at 8:58 pm

Great point….you can have the best education, but if you aren't willing to work hard in your career, the degree will never pay off.

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Nick April 25, 2012 at 2:03 pm

We put Christening money in 529s for our kids plus add add $$ per month into them. But we also max out retirement accounts and save separately (as you can tell, we live pretty frugally…). I strongly believe on getting good value out of an education so I'm going to be advocating for "just as much" college as you need… so I'm generally not a big fan of expensive school for a $35,000/year gig if a state school would do just the same.
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MoneySma April 25, 2012 at 8:57 pm

That's great you are maxing out retirement and are still able to put money aside for your kid's college education.

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Nick April 26, 2012 at 5:19 pm

well we're pretty cheap folks :)

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Elaine@MFin3 April 26, 2012 at 7:31 am

My plan was to start early – start early stressing how much they were going to love being poor students LOL

I show them daily how if you want something you have to work for it – so if DS1 wants Oxford, he'd better work his ass off now to get those scholarships or come up with a way of creating income to pay his own way.

By the time he goes to Uni – I want him to have the skills of life and work down pat – nothing worse than an "educated employee" who has zero concept of how to live without the bank of Mum and Dad.

But the I am tough like that.

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Sean@OneSmartDollar April 26, 2012 at 5:25 pm

I agree You should never cut back on your retirement savings for your child's college fund.

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Geoff April 28, 2012 at 10:30 am

The trouble is that some young people go to college or university just studying anything that stops them getting bored for a few years. Whether their course relates to the job they eventually want to go for is almost immaterial.

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Kayla@Cash Flow Your College September 14, 2012 at 10:49 pm

My parents funded my first semester. After that, I was on my own… and I made it debt free. My husband and I have talked this one over several times – neither of us feels we should fully fund our kids’ college education. We plan to save a small amount (enough for the first semester or two) for each child. Even then, it won’t necessarily be allocated to college. If they decide to start a business or attend a vo-tech school, it’ll go toward that. If they spend “under budget,” then the rest of their funds are theirs to do with as they please.
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