Which should you save for first: your retirement, or your children’s education?
An increasing number of financial planners are advising their clients to start saving for retirement first before putting savings into their kids’ education fund. In today’s economic climate, the general consensus is that it’s best to make sure that you and your partner are provided for first, before you start funneling money into extras such as a college savings account.
Saving for Retirement First: The Pros
• If you take care of yourself now, your kids won’t have to later. While you may be reluctant to saddle you children with debt from student loans, financial analysts counsel that if you don’t save enough for retirement, you may be saddling your children later on with an even greater debt: caring for you in old age. By putting your retirement money into a college savings plan, you might end up having to live off your kids, especially if you’re hit with health issues or any other bank-account depleting emergencies.
• The costs of parental care can be prohibitive. If you don’t have enough to live on and your kids have to take care of you, they’ll lose a lot more than the cost of a student loan. According to a study conducted by MedLife Mature Market Institute, leaving your job to take care of a parent can cost you more than $300,000.
• You can’t get a loan for retirement, but your kids can get a loan for college. Once you’ve retired, it’s going to be more difficult to apply for a loan, especially if you don’t have enough money to live on.
Saving for Retirement First: The Cons
• Your kids may have to take a student loan or apply for a scholarship. With the rising costs of education, however, this may be still necessary, even if you’ve been putting money in a college fund for years.
• You may have to work longer to build up your children’s college fund. If you’ve saved for retirement first and there isn’t enough saved for your children’s college tuition, you may have to keep going a little longer — or even take a second job.
No matter how old your kids are or how far off you may be from retirement, effectively prioritizing your saving strategies now can make a significant impact on your entire family’s financial future. That’s why it’s a good idea to talk to a financial planner before you make a decision that could not only affect the rest of your life, but your kids’ lives as well.