college or retirement

This question may seem baffling, on its face. But experts have reduced it to one axiom of the industry, profound in its simplicity: You can borrow for your child’s college education, but you cannot borrow for your retirement.

And therein lies the answer, in spite of what appear to be multiple layers of complications. Your first priority has to be preparing for your needs and comforts in your own retirement, because there is no Plan B for life after your salary terminates. Multiple options exist for paying for college, but there is only one reliable way to prepare for post-paycheck security.

Parental instinct tends to lean toward thinking first of getting the children off to a good start in adult life. But kids have many ways and a long time to survive and adapt, and parents have only one chance at building a secure retirement. Consider this: If you deny your responsibility toward yourself and your retirement in favor of sending the kids to college, by the time you retire, you may be so poor your children will have to wind up supporting you. Then what will all that frenzy over college have accomplished? If, instead, you prudently saved for your retirement, you’ll be in a position to offer more help to the adult kids if they need it.

With proper planning, you should be able to do both, if you’re in a reasonably — by that, we mean “normally” — prosperous situation during your working life. At one time, “first things first” was the standard strategy. The kids’ college came chronologically before your retirement, so that dictated the order of saving. That is no longer true. Retirement simply requires too much of an investment. Much more money is required for those longer, comfortable golden years.

That doesn’t mean the kids are ignored, by any means. It might mean, however, that, unless you are a truly wealthy family, they might have to contribute in ways you either hadn’t thought of or hadn’t wanted to concede:

• Encouraging kids to take advanced-placement courses in high school could shorten the stay in college.
• Considering the students’ career goals. If they want to be teachers, for example, does it make sense to go anywhere other than a state college offering that major? In fact, starting off with an even less expensive two-year school may make still more sense. And let’s be completely candid: Some kids aren’t cut out for college at all. A trade or the military could very well be in their — as well as your —‚ best interests.
• Assuming a four-year degree is important for the student’s future, is a degree from a “prestigious” college necessary? In truth, few occupations rely on, and few employers pay a lot of attention to, where the degree was earned. And give honest thought to how much help graduate school will be in the chosen field.
• Maybe attending a local college and living at home will be a practical and entirely satisfactory way to address exorbitant college costs.
• Part-time and summer jobs can add maturity, responsibility and financial preparedness to students as they approach the last years in high school.
• Student loans and scholarships are virtually a fact of life these days for kids aspiring to a college degree. Help is abundant for those willing to spend the time looking for it online or from counselors. Even if a student has to come out of college and head into the work world with debt, it can be considerably less debt than it would be for those who haven’t invested the time researching these areas.

Even after applying these wise considerations, however, saving for college will have to coincide with the saving already undertaken for retirement. It is still most likely you can accomplish the two in concert. Depending on your situation, you may not be able to foot the entire college bill, but you can make a contribution that will assure you that you’ve done the best you could and that will get your child started in a career with a debt that is manageable.

Here are some steps to take:

• Read the article, balancing saving for retirement and paying for college, for helpful tips on how to do both.
• No matter which is your state of residence, pursue a 529 plan or Coverdell education savings account. These accounts are tax-sheltered and can be opened with as little as $25, in many states. The money and the income it earns can never be taxed, so long as they are used for allowed college expenses. And those expenses are wide-ranging — not limited to tuition, books and room and board. A penalty is charged for money withdrawn and not used for education, and taxes will be assessed for any amount left over. A 529 can be invested either under state management or directed by you. Gradually increasing the amount put into a 529 as your income permits is an easy, painless way to build wealth for education.
• However you save — either for college or retirement — do payroll deduction if it’s available. You don’t miss what you don’t see. Nor are you tempted to spend or redirect it. Check with your employer to see if this service is available.
• Put your raises into your savings. Experts recommend saving 15 percent of your salary and increasing that by 1 or 2 percent a year. That way, your lifestyle won’t change but your preparedness for the future will.

Of course, starting your savings programs as early as you can will be advantageous. Early in your career, you’ll be able to afford higher-risk investments. They should be modified as you age and as your goals draw closer.

The trend these days is for parents to wait until they are older to have children. This typically means they are earning more money by then, but they have less time to achieve the savings goals they crave.

Nevertheless, saving for both retirement and the kids’ education is possible. But all practical reason tells us that retirement saving must come first. Once saving for college becomes an issue, the view of both needs and resources will have gained far more clarity.