A Parent's Dilemma: Save for College or Retirement?

Money Girl gives critical guidance and key facts for prioritizing saving for college and retirement.

Laura Adams, MBA
5-minute read
Episode #352

 Save for College or Retirement?Money Girl listener Grysell asks:

"I'm 42 years old and just started saving for retirement a few years ago. I’m contributing enough to max out the employer match for my 401(k). And I’m also putting money aside to build an emergency fund. Since I got a late start, should I contribute more for retirement or begin saving for college for my 14-year-old son?"

Whether you should save for college or retirement is a tough choice that many parents have to make. In this episode I’ll give you guidance and key facts to keep in mind so you know the right way to prioritize your finances.


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Being a parent means you’ve got lots of financial stress. You want the best for your children, but you also need to make smart decisions for your own future. The cost of college rises faster than hot air. But we’re living longer and will likely have less Social Security to count on, so we need a huge retirement nest egg. Ugh, the pressure!

How Much Parents Save for College

According to Sallie Mae’s “How America Saves for College 2014” study, 89% of parents say that college is an investment in their child’s future. However, only half of all families with children under the age of 18 are saving for college.

The report shows that families who are saving deserve a pat on the back; they put away 30% more this year compared to last year. High-income families save an average of $27,446 for college and low-income families save just $3,792. And middle-income families are saving an average of $12,241.

When non-savers were asked why they aren’t more financially prepared for the cost of a child’s education, the answers weren’t surprising. Fifty eight percent said they don’t have enough money, 22% said their kids will qualify for financial aid or scholarships, and 21% said they just haven’t gotten around to it yet.

What about a student’s responsibility to pay up? The Sallie Mae study found that high-income families are the most likely to say they aren’t saving because their child should foot the bill for college.

How to Prioritize College and Retirement Savings

Unless you’re planning on having your educated kids support you, saving for college should be a lower priority than saving for retirement.

While it might seem coldhearted for a parent to refuse to pay for a child’s education, don’t forget that kids have options. For instance, they can:

  • go to a relatively inexpensive state school or community college
  • get a grant
  • get a job
  • take out federal student loans
  • qualify for a scholarship based on scholastic, athletic, or philanthropic achievements

On the other hand, there are no loans or grants to support you after you stop working—except perhaps a meager Social Security income or a lucky windfall inheritance.

Even with the best of intentions, paying for college can backfire. Unless you’re planning on having your educated kids support you, saving for college should be a lower priority than saving for retirement.

Here’s a quick and dirty tip: If you’re less than 20 years away from retirement and you have not reached 80% of your savings goal, don’t sacrifice a penny for college.

Instead, focus exclusively on building a healthy retirement account by maxing out tax-favored accounts, such as a 401(k) or an IRA. And by the way, having money in retirement accounts doesn’t hurt your child’s chances of getting student financial aid.

If you’re less than 20 years away from retirement and have saved at least 50% of your goal, then perhaps saving one third the cost of a mid-priced college would be a reasonable compromise. Your child could pay one third by working while they’re in school, and the remaining third could come from federal student loans that your child takes out.

See also: How Much Money Do You Need to Retire?


And if you win the lottery or end up with a surplus of retirement savings, you could always pay off a child’s student loan debt down the road.


About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.