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How do you prioritize paying for your child's college education or your retirement?
posted in: Financial Wellness
by Joe Buhrmann

Should I save for college or retirement?

A recent COUNTRY Financial Security Index found that 56 percent of Americans would willingly go into debt to pay for their child’s college education – to the tune of $31,000.  In addition, 3 in 4 Americans feel it’s important to have a college degree when job hunting, and two-thirds feel a college degree is worth the cost.  With the rising cost of college, and many parents unprepared, should they prioritize saving for college over saving for the future? Or can they do both?      

Level Setting

Let’s begin to tackle that question with some level-setting.  First, saving for retirement is a critical priority for most. But when you start  saving for retirement is key. The miracle of compound interest can be illustrated with this example of Joe vs Katy:   

Katy made saving for retirement a priority. She contributed $4,000 annually to a tax-deferred account earning 8 percent, from age 25-35.  She then made no additional contributions, and by age 65, had accumulated over $680,000.  

Joe began saving later.  He contributed the same $4,000 annually to a tax-deferred account earning 8%, but contributed from age 35 all the way to age 65.  At that point, he had accumulated just over $532,000.   

Why the difference?  Time.  Katy had the benefit of more years of compounding.  This illustrates the concept of “saving early and often.”

But what about saving for college?

College planning can be more challenging than retirement.  For most Americans, they will likely have 40+ working years to save, and through disciplined, consistent saving, a nice nest egg can be constructed.

For college, though, it’s a different story. Parents usually have approximately 18 years to save, and if you’re like most parents, you’re hoping your kids graduate in four years. This means, should your children choose to go to college, there’s a limited time to save and a very short time to distribute the funds, making investing and distributing your savings more challenging. 

Lots of options

When it comes to tackling the college financing  question, financial representatives cite many options, including: considering lower-cost schools, applying for scholarships and grants, utilizing a community college for the first two years, attending a school close to home and commuting, military service, and so on.  

At the very worst case, there are loans available to assist with financing.  The punchline though – there are no retirement loans.  Having your own retirement in order before allocating funds for college can be a sound financial strategy.  

But can’t we do both? 

Can you have a solid retirement and a college education for a child?  The answer is yes.  It takes planning and making choices. 

It may require additional savings, trimming expenses, working longer, or a hybrid-retirement where part-time employment is part of the solution.  As with most of life’s important goals, it’s about time, setting priorities, and balancing a multitude of choices.   

Baseball legend Yogi Berra may have summed it up best: “You’ve got to be very careful if you don’t know where you are going, because you might not get there.”

People who reach their goals rarely do it alone. To learn more about putting together a plan for improving your financial wellness and balancing your future goals, contact your local COUNTRY Financial representative. 

Joe Buhrmann is a Certified Financial Planner™ certificant and the Manager of Planning Support for COUNTRY Financial.  

COUNTRY Financial® and our representatives cannot give tax or legal advice.  Any information we provide reflects our understanding of current tax laws. Tax laws are subject to change and reinterpretation.  We recommend you consult legal and tax counsel of your choice before making any decisions regarding your personal planning needs.

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