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Where to Focus Your Financial Planning: Your Retirement Or College For Your Kids?

Steve Pomeranz, Financial Planning, Saving For Retirement, Saving For Education

Most adults join the workforce and start, at least initially, planning for retirement with something like a 401(k). You work hard, confident that the money you’re making and saving will have to keep you afloat once you retire. But there are always expenses that chip away at what you’re trying to set aside for your golden years. One of these expenses is the cost of providing a college education to your children because, in many cases, there’s a pretty good chance that if you have kids, they will most likely go to college before you retire.

College tuition can take a major chunk out of your retirement savings, even if your children go to the most economical schools. And it can be difficult to save for both without one nest egg suffering. So, where should your focus be?

Why Planning For Your Retirement Is So Crucial

Let’s get brutally honest for a minute: while your children’s future will always be important to you, the decision between planning for your own retirement and planning for your child’s higher education, should, in my opinion, focus on YOUR long-term financial security first. There, I’ve said it! But why IS that?

In a nutshell because what you save and earn from investments now is all that you’ll have to live on for another 20 or 30 years after you walk off the work floor. And you certainly don’t want to end up becoming a financial burden to your children. That’s no good for anyone.

A lot of people think they can funnel money away for both retirement and a college education for their kids, and maybe you can if you have a large enough income. In decades past, squirreling money away for both of these major purposes was a lot more feasible. But that was before the cost of attending a four-year university went through the roof.

One often-overlooked fact of life is that people are simply living longer. With each year that passes, the healthcare industry advances. New medications and new operating techniques extend the lives of retirees by literally decades. Planning for retirement for your grandparents probably meant planning for no more than 10 or 15 years. Nowadays, many retirees live another 30 years or more past the traditional retirement age of 65. If you’ve underestimated how many years your retirement fund has to keep you going, then you’re headed for financial trouble.

Another problem is that virtually everyone planning for retirement also underestimates how much the cost of living will change by the time they hit retirement. Most people simply can’t calculate what a huge difference inflation is going to make in their cost of living 40 or 50 years down the road.

In short, adequate financial planning for your retirement is going to require amassing a lot more in retirement savings than you think. And that, unfortunately, means that any money you funnel into funding higher education for your children is going to make it significantly harder for you to pile up a sufficient retirement account. The bottom line is that having enough money to live on in retirement is a necessity for you while paying for your kids to go to college is a luxury.

There Are Alternatives To Funding Higher Education For Your Kids

There are a number of alternatives to funding higher education for your kids.

There are federal student loan programs. Of course, you want to use these with prudence to help your child avoid piling up a huge of amount debt to get a degree.  There are scholarships, of course, though getting one is dependent on your child’s talents, interests, what school he or she wants to go to, and, of course, their grades. Encouraging your kids academically and coupling that with a healthy balance of extracurricular activities could help your child land a scholarship that will fund a full four-year ride. Careful research helps a lot. Many scholarship opportunities are missed simply because people aren’t aware of them.

Grants are another option. There are both government grants and many private sources of educational grant money. Websites such as thecollegeinvestor.com and studentloanhero.com can be a big help in finding available scholarships and grants.

There’s also always the option for your child to work while going to school. Most kids won’t be able to land a job and work enough hours during their school years to cover the entire cost of their education but coupled with even a partial scholarship or grant, a part-time job may enable your child to fund the majority of his or her college education without a ton of financial assistance from you. (Bonus: studies have shown that kids who work their way through school make better grades, probably because they value the privilege of higher education more when they’ve personally earned it.)

Alternatives To Traditional Higher Education

There are alternatives to the high cost of higher education. Community colleges are one. Community colleges often get a bad rap, with many people thinking the quality of education they offer is much lower than what you get at a traditional four-year university. The truth is that, in most cases, it just isn’t the case. A lot of your child’s eventual career success has to do with how much effort your child puts into his education and how they use that knowledge after graduation, more so than where they go to school. There are plenty of community colleges offering an excellent education for a fraction of the cost of most universities. Two years at a community college and two years at a good university can add up to a reputable degree and save a ton of money to boot.

Bypassing College Altogether

There are also alternative career paths that simply bypass attending college. One nontraditional route after high school is an internship. An internship can be an excellent option for someone who is able to find a spot with a company or organization offering the kind of work they’re interested in as a career. They can get an education through on-the-job training and probably be getting paid for it!

Starting a business is another option. Thanks to the internet, success stories abound of teenagers who started an online business and became millionaires before they turned 30. If your child has a good business idea and an entrepreneurial spirit, helping them out with some startup capital might be a lot less expensive for you—and a lot more profitable for them—than putting them through four years at Harvard.

Joining the military can be a very attractive and rewarding alternative to attending college. Military careers breed character and skills that college simply can’t offer. And if, while in service, your child decides that they want to get a degree, the military will usually pay for it, with training available all the way from various technical fields to a complete medical doctor education through the Armed Forces Health Professions Scholarship Program (HPSP).

Remember, as well, that paying for college is like a four-legged stool.

Leg 1, College loans, grants, and scholarships

Leg 2, Student part-time job

Leg 3, Some college saving from parents,

Leg 4, Financial help from parents out of current income.

So, what are our key takeaways here?

  • Saving for your retirement should be your primary focus. This is money you’ll need to live on for a long time—and be aware that however much you think you’ll need, you’ll probably need more.
  • There are a lot of ways to get funding for your child’s education.
  • There are also many alternatives to traditional higher education that your child may want to pursue.
  • Finally, don’t forget that your kids have a lot more years to get themselves financially straight than you do.

A good financial advisor can give you some pointed advice on financial planning for both retirement and your child’s education. Make sure you work with an experienced advisor who specializes in Financial Planning and works on a fee-only basis.

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