Retirement or College?

Posted by: Henry B. | Dec 22,2007


You’ll read a lot about how people are not saving up adequately for retirement (I realize this could go in the Retirement section, but I’m going to emphasize the “Children” part of Married with Children).  There’s a very good reason for that.  Item number one: life is expensive and getting more so.  In addition to retirement, it’s also advised that you save up for your child’s college education, an emergency fun, paying off debt, and other expenses.

It’s unsurprising if people don’t think first about the distant future, instead focusing on their day to day.  For many, their child’s college education is far more pressing than retirement.  If times are tight, most of a couple’s savings are probably not going to go into retirement until after college is paid off.  This is one of the major reasons that people don’t take an attractive matching offer on a 401(k).  It seems insane to refuse free money, but many people see money put into a 401(k) not as a good investment, but a way to keep savings hostage.  They’d much rather put the money in a bank account, which could then be withdrawn if necessary.  

So what do you do: invest in retirement, save for college, or pay down debt?  It’s a distinct possibility that you may not be able to afford all of the above.  One of the major arguments for paying down debt is the amount of money you save.  On average, people pay $1000 a year for credit card debt.  If you multiply that by 30 or so years (depending on how far you are away from retirement) you’re looking at a lot of money that could have been invested in retirement or a college savings fund.  So debt payment is key to your long-term savings plan.

While you’re child is still young, I would recommend that college is your first priority, with retirement second.  If possible, add extra savings to each account, but college is the most imminent.  The more you save for college, the less your child will be saddled with student loan payments.  This can be as helpful as the college degree itself, as student loans can put young borrower’s in some financial turmoil.  

All told, it’s a pretty difficult balance, so you’ve got to prioritize.  Whatever you do, don’t avoid the issue entirely.  Adding $100 a month to an account is better than nothing.  Over the long term, you’ll be glad that you did.  

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