One of the many ‘rules’ most financial experts advise is saving for your own retirement before saving for your kids’ post-secondary education. The idea is like when you are on a plane – you should put on your own oxygen mask before helping your little ones with theirs. The curiously paradoxical thing about this financial advice is that no one I have ever met seems to follow it.
Even Dave Ramsey gives retirement savings priority over college savings. He sees college or post-secondary education as “extremely important”, but still a “luxury”. At the same time, he comments that your retirement savings are necessary for providing “basics” that you will need in your own life. He believes that “your child will have other ways to pay—scholarships, grants, or part-time jobs,” or they can select a less expensive school.
Still, most people seem to be willing to simply work a few years longer to be able to provide for both their retirement and their kids education, or accept a less than luxurious retirement themselves. The median age for a couple to have their first child is age 29 in the US. This means that they are in their late 40s when that child is ready to go to college or trade school. By the time the average couple retires, their kids are adults that are off on their own.
Our son is in college right now and we started saving for his tuition when he was just a toddler. We made payments into his 529 plan at the same time we made contributions into our own 401k plans. The 529 plan savings were a lot less than what went to our retirement savings, anyway. If we hadn’t been ready to fund both his college and our retirement, I’m certain we would have kept working.
In a survey I did a few years ago, many early retirees had kids still in school (40% not even old enough for high school yet). Still, not a person that responded said that they had prioritized their retirement over their kids education. Everyone had a plan to accomplish both. Clearly, early retirees are a unique group, but still no one put their own desires ahead of what they felt their kids would really need.
What was your approach to balancing college & retirement savings?
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