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Informative Articles

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The Retirement-Savings Vs. College-Savings Dilemma

Before a child is born, every parent considers (even if briefly) the cost of raising a child and to put them through college. And the question about saving money that you'll consider at some point is: how do I evaluate whether I should be saving for my own retirement or saving for the kids' college?

The obvious answer is to save for both. But few young parents have the earning power and lifestyle discipline to have extra money left over at the end of the month. It simply isn't practical for most families or young parents to do so.

When it comes to paying for college, there are many resources to tap. The most common sources are student loans, grants, scholarships, tax credits, work-study, employer assistance, or financial aid from states/federal agencies/community organizations. If that isn't enough, the student could choose a school with cheaper tuition, work part-time, or work full-time and postpone entering school to save up more money.

There is always a way to fund a college education or trade school training (even an expensive one). But there is no way to finance a retirement. None. (You can apply for a reverse mortgage to spend the equity that you've built up in your home, but that is not a sustainable solution for most retirees). What do you think is going to happen when the baby-boomers start receiving social security checks in 2014. Do you think it will be more likely that social security benefits will go up or go down? Are the social security taxes that people pay more likely to go up or go down? The underlying answer is that you need to personally save money for your own retirement; nobody is going to automatically write you a big check to spend however you want just because you don't want to work anymore.

I've explained some of the details but the concise answer to the title question to this article is: always save for your retirement first, because no one is going to do for it for you. Save for college later when you are earning more money, and already have a great start on your retirement accounts. There are many ways to pay for a college education, and it seems there are more every few years. But as no one knows the future, your kids may not even have an interest or need for college based on their particular situation. In the meantime, over those same 18 years, you could have set aside a lot of money for your retirement.

About the author:

Francis Kier has an MBA in finance and shares his two decades of experience with investing and personal finance. More of his articles are available at http://investing.real-solution-center.com.

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