Retirement or Kids’ College Education: Which Savings Should Come First?

As parents, we all want what’s best for our children, even if it means sacrificing our own happiness for the sake of their wellbeing. But when it comes to financial security, should parents give up on their dream for a comfortable retirement to fund their kids’ college education?

You can plan for your long-term financial security and manage your children’s education expenses simultaneously

According to PNC senior wealth strategist, Michael Moyer, there is no reason why parents should have to choose college education over their retirement, or vice versa. You can plan for your long-term financial security and manage your children’s education expenses simultaneously.

Michael Moyer says that there is no doubt that higher education is the best way to ensure a better financial future for your kids and the opportunities that come with a college degree can make the investment worthwhile. But parents should learn to help themselves before helping their children.

This means that your own retirement planning should come first because it serves as the foundation for a secure financial future. But while he believes that retirement should take precedence over children’s college education, planning well in advance can make it possible for you to save for both scenarios.

Here are four crucial tips for parents who want to fund their children’s college education without sacrificing their dream of a comfortable retirement.

Use 401(k) To Your Advantage

If you’re working for a reputable company, then you most probably have access to an employer-provided 401(k) plan that can really boost your retirement savings. But like with all long-term investments, the sooner you start saving for retirement, the more financial security you will have once you leave the workforce. Moyer recommends starting as early as in your 20’s but no later than 30’s. With a 401(k) you can contribute as much as $18,500 annually, and the money grows tax-deferred in your retirement account.

With a 401(k) you can contribute as much as $18,500 annually, and the money grows tax-deferred in your retirement account

What makes this retirement plan even better is if your employer gives you the 401(k) match as part of the benefit package which is basically free money for whatever amount you contribute to the account. Most companies offer up to 5 per cent of employees’ contributions as 401(k) match which can equal $1,336 every year.

Invest In 529 plan

Sending off your children to college is a big decision, both emotionally and financially, which is why you must be prepared for it well in advance. Investing in a 529 plan works similar to a retirement account, but in this case, it is used to fund your child’s college education. It’s a smart investment choice for parents who want to start saving for their children’s college education early, and one of the biggest advantages of a 529 plan is that anyone can contribute to it, be it a neighbor, grandparent or a friend.

Most parents hope that their children can get some scholarship or financial aid from colleges, but that isn’t always a possibility. However, there are several other ways to fund college education such as a work-study plan, grants even college loan that your child can eventually pay back once they start earning.

The sooner you start saving for retirement, the more financial security you will have once you leave the workforce

Cut Discretionary Expenses

You’ll be amazed at how much you can save annually by cutting small discretionary expenses like your daily morning coffee from Starbucks or using the public transport instead of a car to get to work. When it comes to saving, you should always keep an eye on your budget and see where you’re spending more than you should.

Prioritize your retirement, children’s education and mortgage payments over all other expenses, and learn to live within your means, instead of using credit card and other personal loans to fund your lifestyle.

Consult With a Financial Professional

If you’re struggling with your finances or don’t know how to juggle between retirement and college planning at the same time, it might be wise to get help from a certified financial professional who can help you figure out how much money you will need for retirement and college expenses, and how much you need to save every month to meet your goals.

A certified financial planner knows that retirement should be your number one priority and they can help you allocate your resources in a way that prioritizes certain objectives over others. Sometimes it’s best to take advice from an independent resource, especially if you’re prone to letting your emotions get in the way of sound financial planning.