Should You Save For Retirement or Your Kids College Education?

When it comes to saving for long-term financial goals like retirement and your children’s college educations, many people discover that despite their best intentions, they simply can’t do it all. This is especially true when you consider the pressures and demands of meeting current expenses like the mortgage, utilities, groceries, insurance, car payments — the list goes on and on.

This raises an important question: If faced with the choice of saving for retirement or saving for your kids’ college, which should you choose? While both are noble goals and usually smart financial moves, many experts say that most people should focus on saving for retirement instead of college, if they can’t do both.

“The simple reason for this is the fact that there are a number of different options available to help pay for a college education,” says Martin Lerner, executive vice president, David Lerner Associates. “But unless you are among the dwindling number of Americans who has access to a defined benefit pension plan at work, you will be primarily responsible for your own financial security during retirement.”

Options for College

Scholarships and grants are the first place to look for help in paying for college. Unlike student loans, these do not have to be repaid. There is a wide range of different college grants and scholarships, many of which are not well publicized and actually go unclaimed every year. Also, investigate student aid packages like the federal Pell Grant program, which provides needs-based grants to college students from low-income families.

If your child doesn’t qualify for any scholarships or grants, you might consider taking out a student loan. Of course, loans must be repaid with interest, and total student loan volume in the U.S. has soared in recent years. The average debt load for a student who graduated in 2012 was almost $30,000.

“Families should think seriously about the potential financial repercussions involved in taking out student loans,” says Lerner. “Weigh the long-term costs against the benefits your child will obtain from his or her degree.”

Another option is for your child to work part-time while attending college to help pay for his or her tuition and other expenses. While a part time, minimum wage job probably won’t cover all of your child’s college expenses, it will certainly help. And many students have a greater appreciation for their college education when they have a financial stake in helping to pay for it.

If these solutions are still leaving you short when it comes to paying for your children’s college, it might be time to consider some tradeoffs. For example, you can probably save a considerable amount of money if your child attends a local community college for a year or two instead of going straight to an out-of-town, four-year institution. The tuition and fees will likely be cheaper, and you’ll also save on room and board if your child lives at home during this time. Your child can then transfer to a four-year college later.

Saving for Both Simultaneously

There is one savings tool that may enable you to save for retirement and college at the same time: The Roth IRA. Contributions to Roth IRAs (but not earnings on the account) can be withdrawn for any purpose, at any age, without tax or penalty, including paying for college. So, one strategy is to withdraw Roth IRA principal for college and leave the earnings in the account for retirement.

“Determining whether to prioritize retirement or college savings is an important decision, and every family situation is different,” says Lerner. “Weigh your circumstances carefully as you strive to make the right decision for your family.”

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities. Member FINRA & SIPC