Should You Save For College Or Retirement?

The article, Expecting the Expenses in the Washington Post highlights issues couples should consider when deciding to have children. Here are the some of the main points gleaned from the article:

  • If you are planning on having children, save as much money as you can before baby gets here. Kids are expensive, but do I really need to tell you that?
  • Look into a short-term-disability policies such as one from Aflac, a secondary insurance provider, to help cover the loss of salaries while the new mom is home taking care of baby
  • Increase your withholdings (check with your financial/tax advisor) to help make up for the loss of one salary for a few months
  • Create a will. I know its scary to think about this but it must be done. The fact is, should something happen to either parent or God forbid both, you want it very clear what’s to happen and who retains custody of the child.
  • Set up a trust
  • Enroll in your employers dependent care savings account. Otherwise known as a health savings plan which allows you to set aside up to $5,000 of your earnings annually, tax-free
  • Decide how you will pay for college. Will you allow your little one to take out loans or do you want to start saving now to pay for college later?

The last point brings us to our main point of discussion:  Will you save for your child’s education? Or will you allow them to take out loans?

The debate in my home is as follows:

Mr Latte contends that we should save for baby Latte’s college fund so that they will not have to struggle with paying back student loans upon graduation. I think otherwise. I believe that if our child understands that they will be paying for their own education they will value the experience and education itself more than the child that was sent to college knowing that mom and dad paid for it with no sacrifice on their part. 

Furthermore, the value of a college degree is debatable these days and I don’t see the need to lay out 6 figures for it.  At the very least, 2 years at a community college and then the other 2 at a state school.

I go back and forth on the issue but I would be so hurt if we sacrificed for so many years by saving for their education only to have them blow it all by dropping out or getting bad grades warranting expulsion.

Furthermore, “you can get a loan for college but you can’t get a loan for retirement“, is pretty self explanatory. I want to be more than just comfortable in retirement because who plans to rely on Social Security?  I don’t! Admittedly, I still have a 6 figure loan balance myself so saving for my future child’s college fund is somewhat off my radar at the moment.

What’s your stance on the debate? Will you save for college or will you focus on other areas such as retirement? Will you do both?

This article was originally published on December 23, 2007 and updated on March 6, 2012.

  • JoeTaxpayer

    My wife and I saved enough to pay for our daughters college cost in full, and I’m wondering if we did the right thing. Had we used these funds to accelerate our retirement, we could qualify for far more in grants and reduced college costs. I may be mistaken, this isn’t my strong subject, but I’ve read that funds in cask for college directly reduce any aid one might receive. Not true?
    I also understand a child’s money is considered available for tuition, and have encouraged my daughter to put her money into a Roth IRA based on her income each year.

  • Roger Wohlner

    Great post. As a financial advisor your 4th bullet point about getting a will is one that I see all too often in younger prospective clients. I will get a call from a young professional who is all ready to invest, buy income property, etc. When I ask him if he (it’s usually a he) if he has a will in place to deal with what would happen to his young children in the event he and his wife were out on “date night” and were killed by a drunk driver and also if he has life insurance in place in the event of his demise the answer is all too often no. I politely tell him this is something that he should get done as soon as he hangs up the phone with me.

    As to your thoughts about paying for college, I am the father of three, including a 24 year old college grad plus a current college senior and a soph. While we have been fortunate in terms of our kids receiving various scholarships and the like, we still write out a lot of checks. As a parent there is nothing more important to me than providing my kids with a good start in life. My advice is to listen to Mr. Latte he is actually right (at least this once). I know how this works after 28+ years of marriage, I was born to be wrong.

  • Mac

    Whatever you decide, the first few tips were helpful. There are so many unknowns between now and then… but the college plans, ideas, and lessons can take shape over time. The important thing seems to be keeping smart financial decisions the priority over that amount of time.

  • Deborah @ImpulseSave

    This is a very interesting debate. For me, parents paying for college was never even a discussion. With eight children in the house, if they were to save for each of us to go to school, they would pretty much have nothing else – including essentials like a house and food! They are saving for retirement and contribute as much to our schooling as possible. The debate was easy to determine because there are so many kids, but there are other facts as well.

    For example, as you said, in order to appreciate the college experience more and to encourage hard work in school, my parents want us to contribute as much as we can towards the bills. We all got jobs during high school and work as hard as we can during college years and summer breaks so that we know we did everything we could to pay for school. Loans and scholarships cover the majority, and then the parents and kids cover the remaining balance.

    Also, both of my parents had student loans when they were younger and understand that with hard work and a reasonable balance, you can pay them off eventually.

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  • K.

    If I had to choose one or the other, it would be retirement of course b/c like you said, there are no loans to cover that. However, I intend to be able to do both by sacrificing say, buying a new car every four years. And living in a modest home vs. piling my cash into a ginormous house. Not splurging on $400 game consoles & $200 jordans and such. It can be done as long as we remember needs vs. wants. Also, as long as me & future hubby can pay for at least some of their education, I’d be happy with that. I have a shytload of student loans and I don’t want my kid to have to do the same — or at least not to the same extent.

  • Kerry

    Hey girl!!
    You know Im patiently waiting for you and the Mr to pop one out right? And yes saving is the best way instead of hoping that you’ll be able to afford the new baby. This is something that new couples dont talk about. They should just as they would saving for a home and retirement. Conversations like these need to happen.

    Congrats on the site! I know you’ve been meaning to get it up and running!