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  • Allison Castle

Retirement Over College Savings

Updated: Aug 7

Why It Makes Sense And How To Talk To Your Kids About It



Investing for retirement and contributing to a child’s college savings are significant dollars for most Americans so it can be difficult for parents to determine how much should be allocated to retirement and how much should be allocated for college savings.


In my 20 year career, I have yet to see a financial expert recommend allocating more to college savings than retirement and these are a few of the reasons why:


-Your retirement pays for your necessary living expenses and there are limited options to fund retirement. If you don’t have retirement savings you will be required to continue working to survive. There are loans, grants, scholarships, and work studies that can help with college expenses and although college can make life better in many ways it is not necessary to survive.


-Your child may actually experience more financial burden in the long run if you expect them to support you in retirement because you choose to pay for their college instead of your retirement.


-Your child may value their education more if they have to contribute financially to the cost.


So that brings us to the question of how do I figure out how much to allocate to my retirement vs college savings. First, it is important to know approximately how much money will be needed to have the retirement lifestyle you want.


According to an article published on businessinsider.comTo retire at 65 and live on investment income of $100,000 a year until age 90, you'd need to have $2.5 million invested on the day you leave work. If you reduced your annual spending target to $65,000, you'd need a starting balance of about $1.6 million in a taxable investment account.” There are some great online retirement savings calculators so you can see how much you would need to contribute each month to reach this investment goal. It is also a good idea to talk to a financial advisor about your goals and how to implement them.


After you have a plan for your retirement you can determine if you have funds remaining for college savings.


Whether you are saving for college or not I invite you to sit down and talk to your child about his/her thoughts on higher education. Not only is this important for his/her future it is also the perfect opportunity to teach your child some important lessons about money.


During this conversation, You can look at what types of schools your child could choose and get a rough estimate of what college will cost when your child will be attending. This can be a very eye-opening exercise as there can be a significant difference between community colleges, public and private institutions.


For a starting reference: “Among ranked National Universities, the average cost of tuition and fees for the 2019–2020 school year was $41,426 at private colleges, $11,260 for state residents at public colleges and $27,120 for out-of-state students at state schools, according to data reported to U.S. News in an annual survey.” Historically tuition rates have increased between 3% per year for public colleges. There are also some really helpful online calculators that can help you estimate college costs based on your child’s age.

You should discuss how much you are willing and able to contribute and how much your child will be responsible for paying. This is also a time you can brainstorm with your child ways they could pay for their portion.


As you are navigating your retirement funding and college savings I invite you to continue to communicate with your child to help them become financially responsible and know that it is ok to “secure your financial oxygen mask first”.


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