Friday, December 14, 2012

Retirement v. College Savings

I found an article on Yahoo! finance today called "Just Explain It: Retirement vs College Savings." I think that most of the people who read this blog are in still currently in college themselves, but this could become relevant to you in the near future.

Not all families choose to or are able to save for their children's education, but some can and do (this also applies to saving for LDS missions). This is something very important you should discuss with your spouse/future spouse. People tend to feel very strongly on this topic - some insist that their children should not have to worry about money while they are in school, others insist that their children need to pave their own way.

Those parents who do decide to save for their children's education have to face an important trade off between saving for retirement and saving for education.

No matter what, saving for retirement should be your #1 priority. I know that's a bold statement, but I really can't think of an instance when saving for your children's future is more important than saving for your own. That sounds really selfish, but think about it -

Your children need to learn how to save for what they want. They need to understand that things are not simply handed to you in life. They need to learn that they are adults now and their decisions are their responsibility. On top of teaching life lessons, your children have way more resources and options available to them for education than you do for retirement. Your children can take out student loans that they will have the rest of their lives to pay off. Your children can choose a less expensive college. They can work during school and during the summers. Your children have a much lower level of expenditures than you do. You, on the other hand, have a limited number of years before retirement. The more you save and the earlier you start, the better off you will be. I'll tell you right now, social security isn't going to cut it for most people. If you want to maintain your current lifestyle, if you want to travel and spend time with your grandkids,you need to save for retirement.

If you do decide to save for children's education, don't sacrifice your retirement savings. And please, for heaven's sake, don't go into debt to pay for your children's education. Remember, your children are adults when they go to college. Help them out if you want to, but don't hurt your financial future in the process. Remember, you have a limited number of years before retirement - you don't need to be spending those years paying down debt, you need to be spending it continuing to save for retirement.

Coming up next: Saving for Retirement - The Low Down