It seems as soon as your young family moves from husband and wife to mama and dada—it’s time to save for college. The reason it seems that way is because it is that way. One newborn and BOOM couples are talking college savings (or should be). When saving for the future, college education savings should not become a substitute for retirement savings.
First, let’s establish a fact: Nothing beats the power of investment compounding when saving for the future. Therefore, the quicker in life you start saving for retirement and a college fund for your children, the greater the future financial opportunities you create for the entire family.
If you think you may lean towards college savings at the cost of retirement savings, please REMEMBER: There are scholarships and financial aid for college; there are no scholarships and financial aid for retirement.
Saving for the Future: The Limitless Pill
Indulge me. I am going to take a limitless pill and read your mind. Your thinking goes like this:
“I need to prioritize, and I want my priority to be college—and then retirement. After all, I am a parent, a new one, and my child’s needs will always come first. My child’s college days are going to come much sooner than my husband’s and my retirement. I have never had excess money and I have been buried in bills for the entirety of my adulthood, so I can take whatever is coming in my golden or perhaps not-so-golden years, but I am not going to let my financial situation spoil my child’s chances at financial happiness.”
The above arguments are fair enough. Since you feel those same arguments, it is interesting to note that you are not alone. In fact, 49 percent of parents saving for the future are willing to delay their retirements to pay for their child’s education, while 74 percent feel guilty they won’t be able to provide more financial assistance.
However, if you delay your retirement or retirement savings, you are willfully contradicting what financial experts by-and-large will tell you: Retirement should be your first savings priority. Saving for your kids’ college tuition comes second.
Saving for the Future: Three More Reasons to Prioritize Retirement
If you were not swayed to save for retirement and college by the first argument (there are no scholarships and financial aid for retirement), here are three more thoughts.
Crunching the Numbers Reveals Retirement May Make More Financial Sense
Interest rates for student loans, at least the ones your kids will take out, are still less than what you can make by putting money in investments for retirements.
You can take out student loans for 3.8 percent, or you can put your money in a diversified investment portfolio across stocks and bonds, and you’re going to average closer to 8 percent. If you look at the numbers with the same dollar amount, investing in retirement, you’re going to be way ahead.
By Prioritizing College Over Retirement, You Could Hurt Everyone In the Long Run
If you put all of your resources into college savings and never get your retirement in order, your children may get their education and everything that comes with it—just as planned.
On the other hand, what happens if you have to leave the workforce early because something goes wrong. Maybe you get sick, and you have to retire sooner than you dreamed you would and you have no disability insurance.
Suddenly, you need a financial lifeline, and the only people you can turn to are—your children.
Even if you believe that you wouldn’t turn to them, they may feel that they have no choice but to lend you a hand—just when their finances were coming together.
Retirement Is Guaranteed. College Isn’t.
You have a 100 percent chance of retiring someday, but the latest findings from the National Center for Education Statistics show that only 65.9 percent of students enrolled in college in the fall following their high school graduation. And not all of those kids will get their degrees.
Your retirement money should be used for retirement. If you stop investing in your retirement or borrow against it to pay for education, you are rolling the dice. You don’t want to support your children through college only to ask them later if they can return the favor.
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