Should I Prioritize Retirement Savings over My Kids’ College Tuition?

As parents, we make it our goal to take care of our children, protect them from harm, and help them succeed.

So, it is no surprise many parents are unsure if they should put their retirement savings over kids’ college tuition or vice versa.

Especially when you consider the rising rates of college tuition.

Consider these statistics from Education Data:

  • Student loan debt in the United States totals $1.73 trillion and grows 6 times faster than the nation’s economy.¹
  • 43.2 million student borrowers are in debt by an average of $39,351 each
  • The average public university student borrows $30,030 to attain a bachelor’s degree
  • Among adults with student loan debt, 93% report borrowing to pay for their own education while 81% report borrowing to pay for a child’s or grandchild’s education.⁴

Federal Student Aid reported in 2020 that “there are 14.2 million borrowers between ages 35 and 49, and as many as 2.3 million student loan borrowers ages 62 and older (though it’s likely that some of these older borrowers are paying down debt for their children’s education).”⁵

These numbers are alarming. And it’s easy to understand why parents worry about their children leaving college with a significant amount of debt.

These numbers also reveal that many parents are taking out loans themselves to pay for their children’s education.

So, back to the question: should you put your retirement savings over kids’ college tuition?

The quick and easy answer is YES.

This may sound harsh and uncaring. It’s not.

For many parents, prioritizing their retirement savings over their kids’ education feels backward. But it isn’t.

Put on Your Oxygen Mask First

retirement savings over kids college

When you board an airplane, the flight attendants provide safety instructions regarding oxygen masks.

“Should the cabin lose pressure, oxygen masks will drop from the overhead area. Please place the mask over your own mouth and nose before assisting others.”

As a parent, this may feel unnatural. But, it is important to remember in the event of an emergency. 

retirement savings over kids college

This same safety instruction applies to putting retirement savings over kids’ college tuition.

Yes, you want to help and protect your child, but what help will you be if you can’t take care of yourself later in life?

If you mistakenly save for your child’s educational future and not your own, you risk forcing your adult children to take care of you in your retirement years. 

Your Kids Have Options

retirement savings over kids college

The vast majority of college students are depending on their parents to foot the bill for college.

According to Sallie Mae’s How America Pays for College 2021 report, “85% of families relied on parent income and savings to pay for college, the largest funding sources.”⁶

That’s a problem considering students have multiple options to pay for their college education outside of their parent’s income and savings. 

Students can apply for scholarships, grants, and financial aid, as well as work-study and part-time jobs.

In contrast, you can’t borrow for retirement. 

While the majority of students leave college with student debt, they will have lower interest rates should they qualify for federal student loans. 

They may also qualify for income-based repayment plans.

Plus, there is ongoing legislation regarding student loan forgiveness, so there is a possibility massive student loans may be a thing of the past.

The Retirement Landscape Is Changing

retirement savings over kids college

Just as college costs are rising, so are retirement costs.

As you consider whether to prioritize retirement savings over a kids’ college tuition, evaluate your retirement needs.

Kiplinger reports, “Pensions are gone. Social Security’s trust funds are shrinking, which puts benefits payouts in danger. Only about half of employers today even offer something like a 401(k). You’re on the hook for funding your retirement. At the same time, your costs in retirement are likely to be higher than they’ve ever been. Couples in their 60s should expect to spend over $250,000 in health care costs alone over the course of their retirements.”⁷

Therefore, it is critical to prioritize saving for retirement. 

Don’t Make Kids Dependent on You

retirement savings over kids college

According to a poll, “Almost half of parents with adult children (45%) have helped their kids financially during the pandemic – and 79% reported that they gave money they would have used for their own personal finances.”⁸ 

Of the 79% who said they gave money to their kids they would have used for their own finances, 16% gave from their retirement savings.⁹ 

While it is natural to want to help your kids out, there comes a point when it is hurting more than it is helping. 

For instance, a study by Pew Research found 6-out of 10 parents have helped their kids out financially in the past year, but the study also noted that today’s young adults are taking longer to achieve traditional adult milestones, such as buying their first home, possibly as a result.¹⁰ 

It Doesn’t Have to Be All or Nothing

retirement savings over kids college

Often, parents think the choice of retirement savings over kids’ college tuition is all or nothing.

This isn’t the case.

Many parents do find ways to help their children with college without paying an arm and a leg.

For example, some parents help cover the costs of books or rent, while the student is responsible for tuition. 

You Can Do Both

retirement savings over kids college

Along these same lines, some parents mistakenly believe they have to choose between saving for retirement and saving for college.

You can do both. 

The key is to contribute more to your retirement savings than college savings. But that doesn’t mean you have to neglect it completely.

Many parents contribute to a 529 plan, which provides tax-free growth, and money can be withdrawn tax-free when used for educational purposes.

Plus, family and friends can contribute to the 529 plan. 

Saving for Retirement Is Better for Your Taxes

retirement savings over kids college

While a 529 plan does have some tax advantages, it still doesn’t offer the same tax benefits like saving for retirement in a 401(k) or IRA.

Business Insider explains, “Anyone actively saving for retirement is probably familiar with the tax benefits of retirement savings plans. From reducing your taxable income with a 401(k) to tax-deferred or tax-free growth with an IRA, the benefits are plentiful.”¹¹ 

It is Possible to Make Changes down the Road

retirement savings over kids college

If you choose to put retirement savings over a kids’ college tuition, it doesn’t mean you won’t help your child in the future.

You may do an exceptional job saving and investing for retirement and discover you have enough saved to help your child out with college tuition.

Don’t Become a Financial Burden to Your Adult Children

retirement savings over kids college

When you choose to put your child’s college tuition over retirement savings, you risk this same child having to pay for your expenses in your retirement years. 

And isn’t that worse than your child incurring student loan debt?

The burden you place on your children later on in life may far outweigh the burden of their taking on student loans.

If you still are unsure about putting your retirement savings over your kids’ tuition, we recommend speaking with a third-party expert to see what options are available to you. 

When selecting a professional advisor, it’s important to work with an advisor who has a  fiduciary duty to you. 

A fiduciary is legally obligated to put your needs above his/her own and act in your best interest — ahead of any brokerage firm, investment provider, or company-provided representative.

Check out our no-cost guide on The Different Types of Licenses Financial Advisors Have and What They Mean to You .

retirement savings over kids college

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