Save for College or Retirement? Keep Your Options Open

Saving for retirement is difficult. So is funding a child’s education. If you’re trying to do both, you’ve got your work cut out for you. So how can you approach this challenge? The best way to do it is to save what you can while keeping your options open.

If you have the means, I highly recommend picking one up

If you have the means, I highly recommend picking one up

It would be great if you didn’t have to prioritize one or the other. To paraphrase Ferris Bueller: if you have the means, I highly recommend funding your retirement and your child’s education. But most people don’t have the means.

The overused analogy for this situation is the pre-flight safety talk – put your own oxygen mask on before helping your child. That means your retirement comes first. But why is that, and what’s a loving parent to do?

Why Take Care of Yourself First?

Saving for retirement should be your priority because you’ve got options now, and it would be nice to keep it that way. As you grow older, your options will dry up, and making adjustments might be difficult or impossible at some point.

Options for Junior: if you’re not able to fund your child’s education, she can work part-time during college and maybe even take a few extra years to get through school. That might not sound ideal, but wait until we start talking about what you’ll have to do if you face a retirement shortfall. The fact is that you don’t even know what your child will want to do with herself – so paying for the traditional full ride might not be necessary.

Options for you: you also have a few options available before you reach retirement. You can work extra or cut your expenses to free up investment money. Small sacrifices for a grand cause. But you get to choose how much you’ll suffer now (instead of finding out that you’re short on retirement and having to suffer the consequences after it’s too late to do anything).

In Your Golden Years

As you grow older (if you have funded your child’s education at the expense of your own retirement) things can get ugly. There are only a limited number of ways to fix a retirement shortfall.

So picture yourself when you get older. Go ahead and take a minute – imagine everything down to your distinguished hair color  and those wrinkles that show how much you’ve been smiling (it’s supposed help you make better decisions about your future).

Working will get harder: you might be able to keep working through your Golden years if you don’t have enough to retire, but you might not. You’ll have less energy than you did when you were younger – even if you are passionate about what you do (you love your job enough to do it forever, right?). In fact, you might even have to call it quits earlier than you hoped due to health reasons (whether it’s your own health or somebody that you care for). It’s not uncommon to be “forced” out of work earlier than expected.

Change is difficult: cutting your standard of living in retirement is also a risky bet. With the unknowns related to health care and changes in Social Security, it’s best not to go into retirement running on fumes (another 80’s movie reference there…). You want to actually enjoy retirement – not just endure it.

How about a loan? You can probably borrow money now, given that you have an income, but what about when you retire – can you borrow to cover your expenses in retirement? Your only option (if any) at that point will probably be something like a reverse mortgage, and those bring their own set of problems. Your child, on the other hand can borrow money to pay for school, and pay off the debt with a lifetime’s worth of income and options in front of her. Of course, it would be best if nobody took a loan, but that might not be feasible.

But You Want What’s Best for Your Child!

You’re not necessarily leaving your kids high and dry if you take care of yourself first. For starters, you’re setting a good example for them by creating a successful retirement for yourself (not to mention that you’ll be less of a burden on them later, which they probably won’t thank you for). What’s more, it’s not too much of a stretch to say that you’re giving them an opportunity to live a life that most people have to live: one where you have to make difficult choices and work hard to get things – and that might even be rewarding for them.

Anyway, maybe that makes you feel better about being so selfish…

A Compromise

If you absolutely insist on saving money for your child’s education (even if you’re not on track for retirement), there may be a compromise: use strategies that keep your options open.

You can certainly “earmark” funds for your child’s education, but it’s a good idea to make sure that you can use those funds if you need to. Two easy ways to do that are with your own Roth IRA (if you’re not already maxing it out for your own needs) or with a 529 college savings plan. With either of those accounts, you can spend the money on your child’s education if your retirement is in good shape. But they both give you the option to keep the money for yourself if it looks like you’ll come up short.

Photo credit: Banalities