When I work with families we normally discuss the goals and concerns they have and often times there’s quite a few different things they’d like to achieve. In the perfect world, there is enough room in their budget to set aside enough to achieve all of their goals. Although it does happen occasionally, much of the time we have to make difficult decisions on what goals will take priority and be properly funded. Often when my clients have kids they want to help pay for their children’s college and their difficult choice is whether to properly save for their retirement or save for their children’s college.
With many understanding that college is expensive and a bachelor’s degree really being the new standard for expected education it’s understandable that parents want to help. The extent to how much they wish to help varies dramatically from just helping with books or part of tuition to everything including books, tuition, housing and an allowance.
On the other hand, you only get once chance at a successful retirement. You can’t afford to get it wrong. The majority of people over estimate what they will receive from Social Security and underestimate what they need to save in order to have a successful retirement. They need to do much more work in this area than they often realize.
With this being said, my opinion on the retirement vs college savings debate can be summed up in one sentence: “You can finance college, you cannot finance your retirement.” What I mean by that is that you or your kids can take loans out to help pay for college if you can’t save enough to pay for everything. They can work throughout college and help pay for their own education. When the day comes that you want to retire though, you cannot walk into a bank and tell them “can you please loan me a couple hundred thousand? I’d like to retire.” You can’t get a loan for your retirement. You can get loans to pay for college. Your retirement must take priority over paying for your children’s college!
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