How to Balance Saving for Retirement With Saving for Your Kids’ College Education

It’s a uniquely Gen X personal finance dilemma: Should those of us with young children be socking away our savings in 401(k)s and IRAsto make up for Social Security’s predicted shortfall, or in 529s to meet our children’s inevitably gigantic college tuition bills? Ideally, of course, we’d contribute to both—but that would require considerable discretionary income. If you have to chose one over the other, which should you pick?

There are two distinct schools of thought on the answer. The first advocates saving for retirement over college because it’s more important to ensure your own financial health. This is sort of an extension of the put-on-your-own-oxygen-mask-first maxim, and it certainly makes some sense: Your kids can always borrow for college, but you can’t really borrow for retirement, with the exception of a reverse home mortgage, which most advisers think is a terrible idea.

The flip side of this, however, is that while you can choose when to retire and delay it if necessary, you can’t really delay when your kid goes to college. Moreover, the cost of tuition has been rising at a much faster rate than inflation, another argument for making college savings a priority. Finally, many parents don’t want to saddle their young with an enormous amount of debt when they graduate.

 

Read more from Money magazine here

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