Will You Save for Retirement or Your Children's College Education?

parents help their two kids with homework and wonder if they should save for retirement or college

Key Takeaways

  • College costs are rising faster than inflation, so families need to plan ahead for how to pay for college. The average 4-year public college tuition is over $10,950 per year.
  • How much you'll need for retirement depends on factors like your desired lifestyle, income, savings goals, and timeline. Typically, the earlier you start saving, the more your money can grow.
  • It may make more sense financially to prioritize your own retirement savings over college savings for your kids. You can take loans for college but not for retirement.
  • There are many options to help fund college besides parental savings, including college savings plans, scholarships, student jobs, community college, and student loans.
  • Retirement accounts are not counted against parents when financial aid is calculated. So saving for retirement does not hurt your child's eligibility for aid.

As a parent, you're used to thinking of your children first. Their sports schedules take precedence over your weekend activities. You plan vacations around the school calendar and their trips to summer camp. You skimp on dining out and nights at the movies to help pay for music lessons or tutoring. But sometimes it can be just as important to consider your own needs.

Deciding whether to save for retirement or your children's college education might feel like another occasion to put your children first. But you might want to think about it differently: You're helping your children by helping yourself first.

College & Retirement Costs: An Education

College costs are rising more rapidly than inflation, according to the College Board, so there are many reasons for parents to be concerned. And the costs associated with a college education vary dramatically.

The average published annual tuition and fees for in-state students attending a public four-year college is just over $10,950, while the average published annual tuition and fees for those attending private four-year institutions is over $39,400.1 (And these prices do not include room and board.)

And then there's retirement, which doesn't come with a set fee — or last just the four-ish years it takes to earn the average bachelor's degree. How much you'll need in retirement could depend on multiple factors:

  • Your desired retirement lifestyle
  • Your current income, budget and financial obligations
  • Your short- and long-term savings goals
  • Your retirement savings timeline

Typically, the earlier you start saving for your retirement, the more time you will have for compound interest to work in your favor. With some smart saving and planning, you could reach your retirement savings goals.

The Case for Putting Retirement First

While you want to help your children pay for their college education costs, you may not be in a financial position to save for both your retirement and their education. If you retire without enough savings to cover your expenses, your children may need to help you out financially someday.

Unfortunately, you can't take out a loan for your retirement needs. If you're in a good financial position for retirement, it's less likely that you will become a burden to your children in the future. For your part, taking care of your own needs in retirement is a gift to yourself and your children.

Options, Options & More Options

Once you remove yourself from the equation, you will be able to see the wide array of options available for your children to cover college costs. While taking out student loans or working while in school may not seem ideal at first, these opportunities provide students a chance to take ownership of their education. They will also be able to develop important life skills, such as budgeting, time management and self-reliance.

There are many options available to help your children fund (or minimize the costs associated with) their college education:

  • College savings 529 plans: These tax-advantaged savings plans allow families, including your children's grandparents, to put aside money for future college costs.
  • Student loans: Your children could take out federal and private student loans to help pay for college. Students applying for financial aid must have their parents submit a Free Application for Federal Student Aid (FAFSA) form every year, which determines how much their parents are expected to contribute.2
  • Scholarships & grants: Schools and other organizations provide scholarships and grants for many reasons, including financial need, academic merit, athletic achievement, extracurricular activities and more. The U.S. Department of Labor also offers a scholarship search tool, which could help your children find and apply for relevant opportunities.3
  • Employment: Your children could work full- or part-time while in school, which could help them defray the cost of their education. Some employers even provide tuition reimbursement, which could be a serious financial help.
  • Community college: Two-year associate degree programs give a less expensive educational foundation that allows your child to finish at a four-year college. Many community colleges have matriculation agreements with in-state public schools. Students can also save money by living at home.

Here's something else to consider: Retirement savings don't count when FAFSA evaluates how much parents can contribute to their children's college bills. In other words, your retirement accounts will not be held against you.

It's not easy to choose between saving for retirement and funding your children's college education, but it's a choice that could help provide a good situation for everyone.

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  1. Trends in College Pricing: Highlights. https://research.collegeboard.org/trends/college-pricing/highlights.
  2. Complete the FAFSA® Form. https://studentaid.gov/h/apply-for-aid/fafsa.
  3. Scholarship Finder. https://www.careeronestop.org/toolkit/training/find-scholarships.aspx.

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