For parents, trying to navigate retirement savings and college tuition at the same time—while also having enough money to cover expenses and keep a decent quality of life—can feel impossible. As a financial advisor, I am often asked some form of this question: Should I put off saving for retirement to save for my children’s college or continue saving for myself and let them take out student loans?
I will never have a “one size fits all” answer to this, but I can help you think through it for yourself.
Putting yourself first is not selfish.
This is the first thing I want you to realize. I often compare retirement savings to the airline safety speech you hear when you fly.
“In the event of a loss of cabin pressure, secure your own oxygen mask before assisting the children traveling with you.”
As a father, I cannot imagine how I would focus on my own safety before my daughter’s, but there is a reason they tell you this. If you delay putting on your own oxygen mask and end up losing consciousness, you will be of no help to anyone. If you take the time to secure your mask, you will be able to help your child and both of you can arrive safely at your destination.
The same goes for your retirement. It’s natural to want to give your kids everything, but if you do so in lieu of funding your own financial future, you’ll only end up living in your kid’s basement when you retire and that’s not the future either of you want.
Considering student loans.
Helping with your child’s educational expenses does not have to mean footing the bill while they’re in school.
If you choose to fund your own retirement and build your own abundance and your own path to financial independence and there’s a student loan for some or all of the educational expenses, you can put yourself in the position to help make those loan payments later.
Financially, it is possible to borrow for almost everything in life—except retirement—which is why you need to prepare yourself to cover all of your own expenses when you no longer have a steady paycheck.
My ideal scenario.
The ideal scenario is to have the wherewithal to save for retirement and education simultaneously and to start saving as early as possible in your career. And it is always best not to require student loans and to find an affordable educational option. That said, if you aren’t in the ideal scenario, I do think it’s better to borrow for school—particularly if you can qualify for a subsidized loan—and to continue to fund your retirement. When you’re funding your 401(k), a lot of times there’s an employer match or a profit share or other types of contributions on your behalf. If you don’t contribute, sometimes that means your employer is not contributing on your behalf, so you’re literally walking away from some of your income.
On the other hand, if you have no student debt, but your 401(k) is not adequate, you might have to work longer than you’d like, or you might never reach financial independence at all. To me, that is an enormous risk that it is better to avoid.
The lesson:
We all want the very best for our kids and to have them get the best education they can without being saddled with debt. Unfortunately, when you have multiple financial obligations and finite resources, which we all do, it’s important to pick your own retirement first simply because you can’t borrow to do it.