You Must Do This Before You Begin Saving for College

Many parents hope to set aside money for their kids college education. But consider doing this first. 

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It’s a dream many parents have for their kids. Not only to see their daughter walk the stage to receive her college diploma but to do so free, or nearly free of debt.

Parents’ desire to save and pay for their child’s college education is a noble one. Perhaps we were straddled with debt upon our graduation and want to avoid the same for our kids, or we were fortunate enough to have our parents pay our way through college. In any case, putting money aside and sacrificing to help pave the way for our kids’ future is a valuable gift.

Saving for your kids college education is a gift – except when it’s not

But consider this – say you religiously set aside hundreds or thousands of dollars each year to make sure your son can attend college with little financial obligation afterwards. He graduates, begins a career, becomes financially independent, maybe even starts a family. But then decades later discovers that you (his parents) haven’t set aside enough for retirement, and now you are forced to turn to him for financial support. All that financial security and independence you hoped to give him is lost as he supports his aging parents.

Here’s what you need to do first:

Despite parents’ desire to put their kids’ needs before their own, there are many reasons why saving for retirement before setting money aside for college might be the greatest gift you give your child. Consider this:

1. There’s no such thing as retirement loans: Other than social security and medicare, there’s little backup plan to retirement savings. Either you have enough or you don’t. But when it comes to college, students have the option to apply for financial aid and scholarships, work while in school, or take out loans. There’s a way to finance the cost of college, but not retirement.
2. Saving for college first may leave money on the table: If your employer offers a match to your 401K, saving for retirement first should especially be a priority. Not taking full advantage of the match means failing to accept thousands of dollars in essentially free savings.
3. You can always help your kids pay off loans later on: Let’s say you’ve made retirement savings the priority as your kids go through their elementary, middle school, and high school years. Saving extra for college just wasn’t in the cards. But now that graduation is over, your income has risen, and since your retirement savings are in good shape, there’s no reason why you can’t help your child pay down her student loans.
4. The little-known retirement savings exception: If you qualify, putting money aside in a traditional or Roth IRA is a great investment. Even while that money is earmarked for retirement, the law allows you to use it to pay for college without incurring the typical 10% penalty for withdrawing money early. If by the time college bills roll around your retirement savings are on track, you could use some of these savings to help cover costs.
5. Consider less expensive options: College is expensive but lately much has been written about whether the cost of name-brand schools really pays off (see “Where You Go is Not Who You’ll Be”, by Frank Bruni). Reducing the total cost of college makes the goal of graduating nearly debt-free that much more attainable.

Giving your child the gift of a financially secure future is priceless. And while leaving college debt-free or with little debt, is beneficial, there might be more harm than good in prioritizing college savings over retirement.

So as you sit in the audience at your child’s graduation, don’t feel guilty if you haven’t contributed as much to the cost of college as you would have liked. Your children will thank you later when they aren’t burdened with the financial responsibility of potentially funding your retirement in addition to funding their own household expenses.

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