Will You Save for Retirement or Your Children’s College Education?

Should I save for retirement or my children’s further studies is the most common question of all working parents. Both are equally important. However, when it comes to choosing one over the other, you should always save for your retirement. You can get a loan for education, but nobody will lend you anything for retirement.

As a parent, it is your responsibility to save enough for your child so that they can pursue their higher education from their dream college. But, before you save for your children, you need to ensure that you have enough to live a decent life after retirement.

Tip: As a general rule, whenever you are stuck between the choice of retirement savings and school fees, always choose retirement savings. Discuss your financial situation and future goals with a professional financial advisor to customize a plan for your family’s needs.

That being said, there is always room for other financial goals as long as you have a perfect savings plan for your retirement in place. Read on to know why is it important to save for your retirement and children’s education simultaneously.

Deciding Between Children’s Education and Retirement

A common mistake of parents is that they put off their retirement savings plan for a while or at least until their kids are educated. In fact, they withdraw from their retirement savings account just to fund their kids’ higher education. Contrary to what people believe, saving for your retirement is not being selfish. It is the most practical decision for parents. Just like how you are told to take care of your masks, seatbelts, and yourself in a flight, you should take care of your retirement before anything.

It is obvious that a retiree requires several sources of income to live a peaceful life. You can’t rely on social security to fund your life after retirement. Most retirees have multiple sources of income during their working years. Ideally, a significant portion of your savings should go into your retirement account. Of course, that doesn’t mean you can’t save for other goals. As long as you are contributing to the RRSP account and have a good investment profile, you can think about saving for your child’s college.

How Can You Save for College?

Take a look at your current retirement savings to see whether you are above your retirement goals or below that. If you have already saved enough for retirement and you have multiple sources of income plans in place, it makes sense to redirect some portion of your earnings towards children’s education.

The biggest reason why experts recommend retirement savings more than savings for other financial goals is that funds for nearly any financial requirement can be loaned. Whether it is your child’s education or a plan to build your own home, you can obtain loans at a decent interest rate. However, no bank or financial institution will lend you money for retirement. Since you will not have any stable source of income by then, no lender will want to put their money at stake. If you take a loan for your child’s college, you will have plenty of time to repay that. Besides, there is a hope your child will start earning once they complete college and repay the loan themselves.

Your child can also apply for grants and scholarships. Most students complete their higher studies on scholarships and from reputable universities. If these are not the options, there is always a choice of applying for a government university or an affordable institute. There are also schools that offer generous financial aid to students who can’t afford tuition fees but have a good academic record.

Why Prioritize Retirement Savings?

As mentioned earlier, there are plenty of ways to fund your college fees. By the time your kids start college, they will most likely be self-independent. They can get a part-time job or start freelancing to fund their college fees on their own. Or, you can contribute a small portion of your income from investments, savings, and your job to help your kids finish higher studies. Similarly, the loan is the last resort for people who can’t find any viable way to finance their child’s college fees. These options are not available for your retirement. In fact, there is little you can do to get financial support during your retirement from financial institutions. Without a job, your only source of income for retirement will be your savings (or investment, if you have a solid investment portfolio).

Another reason why saving for retirement is important is that it removes a financial burden on your children. As your child grows and starts earning, they will have to put money aside to take care of your financial needs. If you have sufficient money for your retirement, this will not be a problem. In fact, if you have tons of money in your retirement accounts (more than you need for a decent lifestyle), you can help your children and grandchildren financially.  That said, putting all your savings into a retirement account is not a great idea either. What if you meet a financial crisis that requires an emergency fund? Without a proper emergency account in place, you will end up having to withdraw money from your retirement account, which might lead to penalties.

Bottom Line

At the end of the day, you need to strike the right balance between your retirement and other savings. Always put your retirement on priority and focus on other things later. Once you have saved enough for retirement, you can consider directing your savings towards other financial goals, such as children’s education or their marriage.

Learn more about how much money you should save for retirement and what percentage of your income must go into your child’s college savings at Groth Financial. George J. Roth will help you overcome your financial challenges with an effective retirement plan. Call him on tel:+17809098524 or visit GRoth Financial for more information.