Save for College or Retirement?

Save for yourself or your children?

According to the WSJ Nov. 4, 2013, this question is the “fundamental financial conflict that many families face; saving for college vs. saving for retirement”. 

It is no secret that the cost of college is accelerating at 2-3 times the average cost of inflation. The average cost of attendance for a 4-year state university is $100,000 and that’s if they can graduate in 4 years! This means you would need to deposit $7,235 into and account each year, starting at your child’s birth, earning 5% compounding interest for the next 22 years to have the money necessary to cover the college expense. 

Did you catch the 5% compounding, each year for 22 years. This means the investment vehicle you save your college money in could never have a loss. The investment could not go thought the market down turns of 2000 or 2008. Those downturns whipped out all the gain and you would be starting over again. 

When I coach my families to save for college, it is just that. We save for college, we don’t invest. Investing assumes risk and you can lose money. There are savings vehicles that are compounding, liquid and safe. This is where money should be saved for college. 

My saving priority for families always starts with mom and dad.  Retirement should be the parent’s #1 saving objective. Parents must answer theses question first before  they go out on the limb of paying for college…”How does your retirement look? Are you out of debt? Do you have a plan to get out of Debt?” Debt and Retirement must be address prior to saving for college. I always remind parents that they are 10-15 years away from retirement and their children are 45 to 50 years away from retirement. 

Never forget, college planning is financial planning and families must look at their overall financial situation when addressing college. Ideally, families should be saving for both college and retirement but how to do this in the most efficient way depends on each family and their unique situation. Financial planning requires a holistic look at a family’s current financial situation and financial goals. Taking the time to asses and plan your financial future will ensure a much more success paying for college plan without sacrificing your retirement.