Retirement vs. College Planning

Many parents perceive a conflict between funding a child’s college education and building their own retirement nest egg.  This perceived conflict usually arises from the lack of financial resources to do both while funding daily living expenses.  As a result, parents can become stuck between priorities, and they usually wind up doing nothing at all.

As parents striving to provide for both your future and your children’s future, it’s important to sort out your priorities in a way that will support your family for the long term and make saving for college and retirement a manageable feat. 

Here are some guidelines to help you strike a balance between saving for your retirement and your child’s education:

Build an emergency fund first.  This should be 3-6 months of living expenses that you have saved to fall back on in an emergency.  If you don’t have it, you will likely be forced to raid your 401(k) or other retirement account, spending even more for penalties and taxes to cover the cost of the emergency.

Save for your retirement or build a business to fund your retirement second.  It is difficult for many parents to accept that they may not be able to fully fund a child’s college education, but consider the alternative.  You aren’t being “selfless” if you spend what you should have saved for retirement, or to create a business, to fund your child’s education.  What happens when you have spent your life savings on college and then run out of money right when your kids are having their own families and trying to save for their own retirement?  Then you will be financially dependent on them – just what you (and they) don’t want.  There’s a reason why there are loans for education but not for retirement.

Save for your kids’ college education last.  Only after you have funded your emergency stash and your own retirement accounts (or built a business to fund your retirement) should you funnel cash to a child’s education fund.  If you invest in a 529 college savings plan, the earnings grow tax-free. Also, other people in your child’s life -- like grandparents and generous aunts and uncles -- can contribute as much as $14,000 per year (annual gift tax exclusion) to a child’s 529 plan. 

Elise Rodriguez is a South Florida attorney who focuses on estate, business, and family planning. To learn more about strategies for getting your financial future in balance, call (305) 860-8338 and mention South Florida Parenting to schedule a FREE Family Wealth Planning Session with Elise (worth $750). For more about family planning visit www.lifelonglaw.com.