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Should You Save for College or Retirement First?

November 15, 2014 Comments off

college savingsIf you’re like most people who have children, you’re probably doing all you can to save for their college education. Due to the current cost of a college eduction along with the fact that the cost is escalating at a pace much higher than inflation, and likely higher than the growth of your income, it can seem like a daunting task.

While you’re working hard and saving for college, there’s still the nagging question in the back of your mind, “Am I saving enough for retirement, too?” Some folks are lucky and have an income level that makes it possible to save adequate amounts to ensure both a top-notch education for your kids, and the retirement lifestyle you’ve always dreamed of.  If you don’t fit into this lucky group you’re probably wondering which side you’ll have to sacrifice.

As parents, our natural instincts are to provide for our children first, and ourselves later.  After all, if there was only enough food in your house and you had to decide who went hungry, you know it would be you…and you wouldn’t even think about it for a second.

However, in this particular case, it makes better financial sense to over-ride this natural inclination, and think of yourself first. From a purely financial perspective, if you have to choose between saving for college and saving for retirement, you should save for retirement. There are a couple of reasons for this, but the most important one is you can finance a college education, you can’t finance a retirement.

The other aspects of this to consider are the fact that you will need a considerable amount more money for retirement than college, therefore starting to save earlier will be important for hitting your goal. Finally, you will gain more current tax advantages by saving for retirement than you will saving for college.

It goes against your parental instincts, but if you HAVE to make a choice, choose to save for retirement.