In recent weeks, we have talked about two big types of saving goals — retirement and college. For many folks, these two goals can compete with each other.
Before college, the decision about which goal to maximize usually falls on the parents. Many parents give college savings a higher priority than retirement savings, thinking they will have time to catch up on retirement savings once their children are in college. Experts suggest, however, that retirement savings should have the higher priority. Children can delay going to college or can work their way through college if there aren’t enough savings or financial aid to fund college.
On the other hand, parents may think they can delay retirement. Statistics show, though, that nearly 25 percent of current retirees were forced to retire earlier than they planned due to unexpected circumstances.
Parents may also think that they can continue to work after retirement. Often, though, the same circumstances that caused the early retirement may prevent the parent from working into retirement.
After college, the retirement versus college costs (student loan debt) usually falls on the new college graduate. The tendency often is to wait to save for retirement until after the student loans are paid. However, if the graduate’s employer offers a 401(k) match, failing to participate in the plan will cost the worker a 100 percent return on their investment. Even if the employer does not offer a match, every dollar invested in a qualified retirement plan will reduce current income taxes.
The after-college decision can also fall on the parents if they took out parent loans to help fund their child’s college education. While it is best to have those parent loans paid before heading into retirement, you also need enough in your retirement nest egg to fund your retirement.
Consequently, whether you are saving for college or paying off student loans, don’t neglect saving for retirement. Your future self will thank you.
Judith Ackland has more than 26 years of experience in accountancy and financial planning, including seventeen years as a CFO of a diverse business. She started Crystal Financial in 2010 to help a wide array of individuals, families, and business owners better understand their finances and how good financial management could help them achieve their goals. Judith has an MA in Professional Accountancy from the University of Nebraska at Lincoln as well as a Certified Public Accountant Certificate and a Certified Financial Planner designation.
