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College Savings is a Retirement Problem


The following article is by Kristi, our staff writer. She is a great freelance writer, blogger, wife, and stay at home mom of two.

College Saving is a Retirement ProblemStarting out in your first real job, either fresh out of high school or after you receive your college diploma, you feel like you have all the time in the world to prepare for retirement. It feels so distant, and when you’re working a low-paying job, you don’t really want to part with money to prepare for the long-distant future.

Then, if you get married and have kids, you have a new fund to worry about: that bundle of joy’s college tuition. When you’re holding your newborn, again, you feel like you have all the time in the world to save. Seventeen to eighteen years feel like an eternity when you’re just starting out. At least, that is how I felt when I had my first child.

College savings has become a retirement problem

Now that I’m not exactly fresh out of college, and my kids are getting older, the worry about how I will pay for both retirement and college has really started to creep in. I now realize, with alarming clarity just how much college savings is a retirement problem.

Having crunched the numbers, I know that we would have to be saving (roughly) at least $2000 a month from now until our kids are ready for college, to be able to pay for a state school (never mind a private school…it’s not going to happen) for both of our kids. We’re working on our budget and trying to find ways to save more, but $2000 a month is a complete impossibility, especially since we need to be saving for retirement. Let’s just say, I’m really hoping for some scholarship opportunities or a military academy.

Never deplete your retirement accounts for your kids

A few weeks ago, I talked about how many parents influence their kids’ career choices, either directly and indirectly when they help pay for their college education, and in the comments, many readers voiced their opposition to going into debt to pay for a child’s education.

As much as I want to send my kids to school completely out of pocket, and give them a running start in their adult life, I know that realistically, it’s probably not going to happen. I’m happy to take out a few parent loans, but my kids are going to have to meet us halfway, get a job during school, maybe take out a few loans themselves, or if they’re lucky, get a scholarship.

College savings boils down to parents not being able to save for both, and at the end of the day, they have to choose, forgo putting their kids through school to have enough money for retirement, or use up their retirement funds to put their kids through school. For some families, they have neither the funds for retirement nor their kids’ education.

If you find yourself facing this choice, I urge you to choose your own future and save for your retirement.

Time is on your kids’ side, not yours

 Your kids have the rest of their lives and the whole of their careers to pay off school and build their retirement. Time isn’t on your side. You want to retire someday (maybe even someday soon). If you don’t have enough money to reach your ideal financial goals for both college and retirement, one goal will need to take priority. As hard as it is to focus on yourself and not your children, retirement should be your priority.

Put your needs first

If you put your needs behind those of your kids, you’re going to be left with no way to finance your retirement. You don’t have your entire life ahead of you. In the next 20 or 30 years, you might not have the ability to work as long or as hard as you once did.

There’s also the real possibility that you could start to have serious medical problems or difficulty with movement. If you spend all of your retirement savings on sending your child to college, you may be left struggling, both physically and financially, during your retirement years.

Your kids have access to student loans

Student loan debt is a problem in our country, and there’s no question that we need to see some sort of reforms to student loan process. While not ideal, student loans are a feasible option for your kids if they want to attend college. Any student at any level of financial need can receive an education loan. Whether it’s a fully-funded Pell grant or just an unsubsidized Stafford loan, your child will have options for financing their college tuition. You, on the other hand, can’t receive a retirement loan.

Student loans are a nuisance, but our kids will be ok even if they have to repay debt. With you as their teacher, they’ll have the financial base to understand how to build savings and grow wealth.

Don’t lock yourself into high-interest-rate debt

If you get rid of your savings to pay for college, you may have to rely on credit cards, which much higher interest rates than student loans, to pay for food, gas, and clothing while you’re in retirement. Federal student loans have reasonable interest rates that your child will be able to manage to pay off in time, and they will be better off paying for student loans with significantly lower interest rates than you would be if you were forced to rely on credit cards in retirement.

Also, you may have looked into a home equity loan as an option for affording to fund your child’s tuition, but think carefully about the financial implications if you do.  You don’t want to risk losing your house if you aren’t able to make payments on the loan. Your kids will be better off securing their education with student loans than by putting your home on the line.

Help how you can

Even if you can’t afford to pay for school, make sure to fill out your financial information on the Free Application for Federal Student Aid (FAFSA). Guide your child through the loan process and help them to understand the documents that they’re signing.

If you’re faced with the choice of either funding your child’s college or your retirement, don’t put your future at risk. You can still be there for your kids without draining your retirement funds.

Help them where you can by helping them pay for room and board or for their textbooks. But don’t ever feel obligated to go into debt and have no plan for your future to fund theirs.

By all means, do what you can to set them up for college, but don’t put your quality of life, your home, or your retirement accounts on the line to help pay for it.

Are you facing this dilemma? Have you thought about your game plan for funding retirement and/or college?

Image by Queen’s College

{ 22 comments… add one }
  • Kenny February 17, 2016, 12:46 am

    Getting kids into debt is as bad as not saving as retirement. In my opinion, both are equal sins and equally bad. In fact, think about it this way. If you kids choose NOT to take out loans, since matters are in their hands, or gets a loan and blows off the money, or starts working part-time and delays getting the 4 year education, “the parent” has just ruined 70 years (age 19 to 89) of a young adult as opposed to compromising my last 25 years of retirement.

    I have just finished 4 1/2 years of paying for my older son, and will finish paying the last semester fees of my younger one (they had a 3 year overlap*&^%$#), and also paid for their room and board for all this time. It is tough. I drive a 1999 car that I bought 2 years ago with 109k miles, prior to that had a 2001 car that I bought 2 years prior with 185K miles and drove into the junkyard, and now bought a 2004 Chevy with 173K miles on it. Kids understand why Mom and Dad are driving these cars, taking one small vacation a year, and sacrificing a lot to get them through college. BUT, they are beating the avg student coming out of college with $28K to $38K of debt (might vary a bit), or kids who do not finish college for more then 5 years. Do you know that the avg time for a kid graduating is 5 1/2 years (might vary a bit). Many valid reasons, but one of the invalid reasons is that they need money, but parents never saved for them. Avg spending during Xmas this past year was $343 per person (might vary a bit), avg visit to a restaurant by family is 1.3 times per week, which is much too much, instead of saving for college.

    So, we might be unique, but I have so many parents that agree with my philosophy and approach, that they are all getting loans, paying as much cash they can for college, and ensuring that the kids get the least amt in loans. These kids realize what their parents are doing for them, and therefore work harder in school / college and will become better students (in general) and be more responsible adults, possibly with professional degrees.

    Just my thoughts that I am sharing, and don’t mean to have a different opinion than the writer.

    • retirebyforty February 18, 2016, 9:51 am

      You are right. Kids know when their parents are making a big sacrifice to pay for college. My parent worked very hard to help pay for my education and I worked hard in school in return. Maybe most kids don’t understand how difficult it is for the parents to foot that bill. The parent needs to communicate with the kids and let them know the sacrifices they are making. Also, we need to set clear expectation. If my kid doesn’t study hard, then he can pay his own way.

  • Catwoman73 February 17, 2016, 5:33 am

    We are saving what we can for our daughter, but depending what she decides to do, she will almost certainly have to take on some debt of her own (hopefully not as much as I did, though). We had her rather late, so my husband will be retired before she goes to college, and I will retire shortly after she starts, so it truly is a retirement problem for us. And we weren’t always smart with our money, so we aren’t going to be ridiculously wealthy in retirement as it is- to add in fully supporting our grown child living away from home into the mix would put a pretty big strain on our finances. But we agree with you- we won’t go into debt or put our futures at risk. But we will be as resourceful as we can to make it all work out. I am hoping she can go to a school near home so she can continue to live with us, or that she chooses a career that doesn’t require years and years of schooling, or that she can obtain a scholarship or two, or that she learns a lot about saving from us, and saves some money of her own to help with expenses, or works while in school… or all of the above!

    • retirebyforty February 18, 2016, 9:53 am

      I think going to a local college is the way to go for your kid. She can always transfer to a different school after 2 years.

  • Pennypincher February 17, 2016, 5:50 am

    Wow! Your headline really grabbed attention. Kristi, you should take this post, tour the country, and read it out loud to as many audiences as possible! You should have a 60 second commercial and read it on TV, prime time. It is spot on.
    Parents really need to have their plans in place sooner than later once baby comes along. And plans will change nearing college time. Retirement funding comes first. People are living into their 80’s-90’s. Who wants a mortgage looming over them at retirement??

    Last night the evening news showed Federal Marshals knocking on a man’s door. The Feds wanted him to pay up on a college loan from the 80’s! I say yes! Bravo.It’s about time! He only owed about $1,000 at the time, now he owes something close to $8,000 (!) from interest, fines, fees owed. Well guess what? He lived in a beautiful new home w/an expensive, high end kitchen! Bet he had a nice, new car. What is wrong with this picture??

    Be ready for anything/everything nearing college time. How it’ll be financed from different savings/investing pots. Apply to some smaller, private schools. They have hefty endowments and can give very generous financial packages, sometimes less than what public schools offer. Many larger elite, competitive schools offer very little $ because they don’t have to. Be ready for a plan “B”, in college financing. Get that FAFSA form into the schools asap. It’s first come/first serve with the $$ aid, and it does run out. Near the end of high school, it can get stressful for all involved, because you don’t quite know where you are heading and how much it’ll cost. School counselors can help a lot in that area. Websites can show you what colleges give the most aid. Each college website also tells you how much aid they give per student.
    If needed, federal loans are the best bet, never private loans. Parents, go to studentaid.ed.gov and read up on all the loans, terms, etc. This is NOT fun reading, but you’ll be ahead of the game if the need arises. Always make sure you are on a government website, especially for FAFSA. There are a lot of scammers out there trying to steal your identity/info in this arena. FAFSA.gov gives excellent customer service. I had boxes and files of all things college related. Took up half of my office. A lot of good help/info out there. But start early.
    Kids grow up and (finally!) appreciate all that you do for them. Start early and get them to appreciate the whole college process by showing them everyone saves for college. Do this w/o any added stress or pressure. They’ll have enough of that in college. Just about everyone is on a tight budget/making ends meet in college, so they won’t be alone there. Have faith it’ll all work out. It will!

  • Jim @ Route To Retire February 17, 2016, 5:56 am

    I’m really glad you wrote about this. I have the same feelings as you do, but have been curious for a while if others in the early retirement community felt the same way.

    It seems like half the time when I have a conversation with someone about my game plan to retire early, they end up asking me “but how are you going to pay for your daughter’s college expenses?”.

    I hope to continue to contribute what I can to her 529 plan for as long as I can, but I do agree that my retirement will need to come first and she can get loans as needed. I’m also hoping that a good financial education will help put her in a better position to take care of those loans sooner rather than later.

    Thanks for the article!

    — Jim

  • PhysicianOnFIRE February 17, 2016, 6:09 am

    It shouldn’t have to be one or the other. Sure, pay yourself first, but then put your child’s education before your wants. It certainly doesn’t have to be $2,000 a month! $200 a month growing tax free in a 529 account for 18 years with a 7% annual growth becomes $86,0000. FWIW, the average debt of medical school grads is now $180,000.

    That $200 a month may not be easy to find, but it might be as simple as cutting the cable / dish and switching to a discount cell phone plan.

    If you can’t save prior to your kids’ college, contribute $2000 towards tuition for a $2000 tax credit during college. The FREE MONEY is available until you hit a MAGI of $180,000 for married filers, $90,000 if single.

    • spudguy February 17, 2016, 1:47 pm

      I agree with this advice on taking a balanced approach. I don’t see why it has to be either/or.

      In my opinion, the key to College Savings is to start early, keep consistent and keep at it for the long-term. Even if it’s $50 or $100 a month, if you start with the up-front discipline to carve it out of your operational budget, I would argue it can be quite manageable. Sometimes there is also the transition for some families where a child is in Day Care, but then moves on to school. This is an opportunity to use some of the resulting savings to add to the College fund.

      I neither believe that Retirement has to be exclusively first, nor do I believe a parent has to be responsible to pay for all college expenses. Seems like giving your children a good chunk via 529 as a great start is sufficient. Strive for balance.

  • Amy B. February 17, 2016, 7:52 am

    Most people I know are bad at saving for anything. It seems to be a societal problem. We don’t value savings.

    However, I personally avoid debt and prioritize saving.

    To meet my goals, sometimes budgets get tight, sacrifices get made, and more hours are worked. Yet, it has been worth my efforts.

    One of my top priorities as a parent has been to support my child in every way I can. My support includes picking up the tab for her college education. Yes I had some parameters such as to complete her Bachelor’s in 8 semesters, to remain on the Honor Roll /Deans list, and to work during the summers full time to earn her spending money. Her spending money covers her clothing, gas, sorority dues, and miscellaneous wants. She does not work during the school year so she can take more hours and focus on grades. I pay for tuition, textbooks, housing, food, and fees.
    I will do this for both her Bachelors and Masters degrees. She will graduate with $0 debt.

    I began tucking money away early and continued consistently adding to it in a 529 plan that performed satisfactorily.

    I am pleased with my choices and the outcome. We all have our own priorities and limited resources. Some choose to spend every penny and then some on houses, cars, jewelry, clothing, restaurants, alcohol, and so on. Everyone has choices. To each their own…..

    I chose my child’s future over most expenditures. Sure the college fund could have provided for newer cars, a bigger house, and more expensive meals but at who’s expense? Personally, I would feel like I had failed if I had made any other choice. My long term goal was to provide for my daughter’s college education and see her graduate with no liabilities. My choice provides her with opportunities that she would otherwise not have if she were burdened with debts to repay.
    Life will present enough struggles to overcome. This was a simple one that I could handle for her with just a plan and some effort.

    As far as my retirement planning goes, I’m good. One of my other priorities was to pay off my mortgage by 40. Check. I was successful.
    I have no debts of any kind just basic living expenses. With limited expenses and no mortgage/debts, I will continue to save.

    I feel that anything is possible if one really wants it. I have accomplished what many others could if they chose too.

  • Mike H. February 17, 2016, 8:43 am

    There are many choices here. Like with all financial decisions, the key is starting early.

    Let’s say you and your significant other just agreed that you want children and are setting a timetable. Now is the time to start a 529 – you can start it in your name and just transfer it later to your child.

    A lot of states also have Educational Trust Funds that you can purchase for your kid. They’re expensive and they come with rules, but if your child gets into an expensive school, you’ll be happy you went that way. Some unions also sponsor educational trusts.

  • freebird February 17, 2016, 9:44 am

    Things have changed a lot since I was a student 35 years ago– back then there were plenty of good-paying careers available straight out of high school so there wasn’t as much pressure to attend college, and getting scholarships was easier as a result. I was one of those who paid for both college and grad school full freight on competitive scholarships, and there were plenty of students who worked odd jobs to both earn a living and study part-time.

    I’m not facing the squeeze today because I don’t have kids, but since I’m running a surplus on retirement savings, I’m helping nieces and nephews with family student loans. Terms are sweet with zero interest and forgiveness of whatever they contribute to their IRA or 401k plans once they graduate (they could choose to repay me instead of their future selves but hopefully college makes them smarter than that). My not so hidden agenda is the idea that a running start will nudge them towards the early retirement track.

    I wouldn’t characterize normal student loans as something that works out easily over time. Those repayments take away from early retirement savings so are very expensive when extrapolated to forward value. That’s why I’d advise those who have no other options to take the absolute minimum of student loans needed to graduate. By all means don’t run up your balance as far as they’ll allow for luxury digs or semester at sea because it’ll take forever to dig out of that hole.

    Another way to reduce the cost burden is to consider community colleges, especially for those who aren’t sure whether their major is right for them. I don’t think loan balances disappear for those who drop out without finishing their degrees– there’s a significant possibility of an 18-year-old making a hugely expensive mistake here.

  • David Michael February 17, 2016, 10:15 am

    Of all the social changes in the last 40 years, the increased costs of college tuition are among the most destructive for our American Democracy IMHO. Nothing is more disturbing than having a debt load of $50-100,000 upon college graduation. This is a prime example of the separation of the Middle Class and the Wealthy.

    In my days of college (class of 1960), I was able to work two or three jobs each summer and pay for the entire costs of board, room, and tuition with an extra job during the academic year in the library (at an Ivy League level university). No debt at college graduation as total costs were $2000 a year. Then onto grad school for two more degrees paid by the National Science Foundation. We all had a future with a sense of purpose, dreams and hope. I paid for my two children at $10,000 a year each which covered everything in their undergraduate years. They paid their own costs for Medical School and Grad School, each saddled by over $100,000 in debt by time they got their degrees.

    This is a crucial election year as at least one candidate has expressed plans for a free college education. When I taught at community college in the S.F. Bay area for 16 years, community college was in fact, free. Oregon now has set in motion a plan for free community college education. So this is no pipe dream. Many of my students went on to Stanford and UC Berkeley. As a result, we turned out well educated students who went on to help build such extraordinary companies as Apple, Google, Oracle, etc. If we had focused on education rather than war the past 15 years, our country would be in a different place. Want to make a difference on the college tuition front? Then, go to the polls and take this country out of the war zone and provide a meaningful and hopeful future for our young people.

  • Justin February 17, 2016, 10:41 am

    We always made retirement savings a first priority and college savings a distant second. There are plenty of other sources of funding for college and not all kids will want or need to go to college (but I hope mine do!).

    The end result is that we are comfortably retired in our 30’s and have about enough to pay for 4 years tuition and fees (x3 kids!) at the nearby well regarded state U’s. If our portfolio does well the next 7-15 years then we can pay for even more college, possibly a full ride. But I’m glad I didn’t neglect our retirement savings just to set aside $500k+ for full rides to the Ivy’s.

  • Stockbeard February 17, 2016, 11:18 am

    I badly want to agree here as I don’t want to have to pay for all my kids’ expenses in college, on the other hands my parents paid for my and my sibling’s education, even when some of us went back to college for a second round (specifically, me. I have 2 master’s degrees, and only now do I realize how expensive the whole thing must have been to my parents).

    My parents paying for my education is the reason I did not have to climb out of debt, unlike many others. This gave me a significant headstart to Financial Independence, so I’ll try to help my kids to the best of my ability, without impacting my own financial future.

  • Thuy February 17, 2016, 1:43 pm

    My parents didn’t pay for any of our college educations. Not because they didn’t want to but because they couldn’t afford to. They weren’t buying expensive houses or cars. Actually, there was 9 of us in a 2 bed 1 bath rural home. That’s what happens when you are refugees! And yet all 7 kids went to college, 6 of us graduated with B.S., 4 of us went on to advanced degrees. We all knew that there would be no college money. My parents supported us in other ways: free room and board, letting us borrow the family car, helping with gas money. We paid for college with grants, scholarships, loans and one through the GI bill.

    I think it is laudable to pay for your children’s college education but I don’t think it is required or necessary to be a good parent. Not every child wants to go to college or is suited for it. I know college is more expensive now then 20 years ago but it is still possible to go to community college pretty cheaply. State University’s are also a great deal. And depending on what career you pick, there are loan forgiveness programs or great entry level salaries that help you pay off the loans quickly.

    In my opinion, the best thing I can do is make sure they have a good financial education. This can include understanding exactly how a student loan effects them, help them explore other ways to pay for college and work with them to pick a career/major that suits them and will be able to sustain them financially.

    That being said, yes we are saving in a 529. I hope this will help pay a good chunk of college but we are not compromising retirement savings to do it.

  • fraGuy February 17, 2016, 4:32 pm

    Wow, if you save $2,ooo/month starting at birth, you’ll have enough for college for both kids (in-state) and probably half a million left over after that.

    If your kids go to a private university, if your income is low enough (and it will be if you are retired!), they might even get a full or mostly full ride.

    We put aside $300 per kid – $200 goes into the Florida Prepaid College plan, and the rest goes into a 529. We also try to fully fund a Coverdell for each kid ever year ($2000 max contribution per year). The Florida prepaid plan pays completely for the kids’ tuition over 4 years at any Florida University, and if they want to to a public school out of florida or to a private school anywhere, then the current market value of the tuition gets paid out to the other institution (so if my kid wants to go to UCLA and tuition at the University of Florida is $30k per year, they send $30k to UCLA).

    We figure the other $100 that goes into the 529 will help pay for room, board, and books.

    So don’t fret so much! If you can put away $200 per kid per month, as another poster noted earlier, then you’re well on your way to providing well for your kids!

  • No Nonsense Landlord February 17, 2016, 8:19 pm

    Everyone cries about Student loan debt. If you are low income, you have free college. If you are smart or have an athletic ability, you get scholarships. If you work in the summer and go to a local college, you can afford it with minimal debt.

    Or you can join the military and get FREE college.

    Or maybe that why kids need to go to college, they can’t figure out the above?

  • Preston @TheDrunkMillionaire February 18, 2016, 12:27 pm

    Great post Kristi! While the level of student debt is crazy out there, parents aren’t doing enough to steer their kids towards alternative (cheaper) routes. As mentioned above, attending a Junior College for the first two years will save thousands! Also, when we have kids, we plan to start savings for college immediately! This way compound interest will work in our favor!

  • Joanna February 18, 2016, 6:37 pm

    A couple of ideas:
    In our state (MN) high school students in their junior and senior years can take college classes for free at public schools and some private schools. These then count for your high school diploma and also your college degree. I took a few classes this way when I was in high school. If my kids are up for the challenge academically, I will encourage them to do this. I think some other states have similar programs.
    I also have thought about working for a college or university. Many of them offer tuition discounts to employees’ family members, and some are part of a consortium, so you can use the discount at other colleges if your child doesn’t want to attend where you work. It would take some figuring to see if that approach stacks up financially- but I think I would definitely look into it if they are thinking of private college.

    • retirebyforty February 19, 2016, 10:19 am

      I took some AP courses when I was in high school. I think it’s a good idea if you’re ready for it. You can always retake them in college if you really need to. A few credits can make a big difference. Working for a college is a great idea. I wonder if they’d need a web marketing guy. 🙂

  • Travel Travel & Retire! August 9, 2016, 5:20 pm

    Yes! This is the one piece of the financial puzzle that I keep changing my mind on often. As I say on my blog, it is hard enough to know what is going to happen in a few years let alone a decade esp not even knowing what my kids will be like then or what college will look like.

    I do struggle about how much to put their accounts and which vehicle to use…for now we have a plan to save 100k for each in 529s (in current dollars) by the time they go to college (they are both under 8 now). Hopefully that is enough for public instate tuition or creative ways to get an education….It is a weird thing to have to be nervous about under or OVER funding esp not knowing what changes to our tax code are coming….

    Do you feel you keep changing your mind about this topic or are you pretty clear about what you want to do?

    • retirebyforty August 10, 2016, 10:47 pm

      100k each is a great goal. I don’t min over funding the 529. We could always transfer it to our nephew or niece or even grandkids. Money for education is always good.

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