One of the most challenging decisions that parents have to make is the allocation of their savings dollars to various long-term priorities and goals. When I meet with young couples, the first order of business is making sure that their is a cash savings account (with at least 6 months of living expenses) and a life insurance policy in place to make sure that the family is protected should the primary breadwinner pass away unexpectedly. But once all defensive measures are covered, the conversation turns to an offensive plan that seeks to provide the highest rate of return for the client’s preferred level of risk. For some clients, discretionary income is not a problem and there are plenty of assets to fund both their retirement plan and a college savings account. But for most people, money is often tight and the college vs retirement savings decision becomes a confusing and complex situation.
For those with limited assets, the conclusion is clear: Fund your retirement first. According to a recent survey by GoBankingrates, 42% of Americans surveyed have saved less than $10,000 toward their retirement, and another 14% have saving nothing at all. As the saying goes, “You can get a loan for college, but not retirement”, so focusing on a long-term retirement savings and investing plan should be paramount. Another survey by T. Rowe Price shows that this message is apparently not being heard, as 74% of respondents with young children are prioritizing college saving over their own retirement. An article by WealthManagement.com discusses the pitfalls of not putting one’s retirement first. Higher current tax bills, limited investment choices, and less liquidity are just a few of the problems with choosing college savings over retirement savings. To read their article, click this link: The Dangers of Saving for College Instead of Retirement