Where to Invest First: Your Retirement or Your Child's College Fund?

Edward Goldstein |

Navigating the financial journey of saving for kids' college while preparing for retirement presents a crucial dilemma for many parents. With college costs soaring, beginning to save early can dramatically impact a family's financial future and peace of mind.

This article delves into strategies for prioritizing savings for retirement without sidelining the importance of saving for kids' college, providing insights into finding a balance that ensures financial security across generations.

Understanding the Dilemma: Retirement vs. College Savings

The Rising Costs of Retirement and College

The financial landscape for American families is marked by two significant and escalating costs: retirement and college education. Retirement planning is deeply personal and varies widely depending on factors like age, income, and desired lifestyle post-retirement. The median retirement savings for American households stand at $87,000, but this figure drops to $18,800 for those under 35. Educational attainment plays a crucial role, with the median retirement savings for individuals with a college degree nearly $100,000 more than those without, partly aided by employer contribution matching.

The Long-term Impact on Financial Health

Navigating between saving for retirement and financing a child's education presents a long-term impact on financial health. While 72% of Americans have some retirement savings, only 31% feel they are on track for a comfortable retirement. On the other hand, the average cost of a 4-year public university is over an overbearing $75,000 today, expected to rise significantly in the coming years. This financial strain influences families to make tough decisions that, unfortunately, conflict with a parent's best intentions, often prioritizing immediate educational costs over long-term retirement savings to their detriment.

Statistical Insights

Recent statistics shed light on the choices families are making. A significant 69% of families assert they will not use retirement savings for college expenses, yet 21% admit they might if necessary. The average parent expects to cover about 30% of their child's college costs, but in reality, only 10% is typically covered. This discrepancy highlights the challenges parents face in balancing these financial goals. Furthermore, the rapid growth of 529 college savings plans, with assets reaching $480.4 billion and over 15.9 million accounts, underscores these plans' importance in educational financing.

Pros of Prioritizing Retirement Savings

Why Retirement Savings Should Be a Priority

Retirement planning should be a top priority for everyone because retirement can extend over 20 years, significantly longer than the time spent in college education. The financial demands of retirement are considerable, given the need to cover daily living expenses without active employment. It is widely acknowledged in financial circles that prioritizing retirement savings is crucial because, unlike college, there are no loans available for retirement. Financial stability in retirement is essential for maintaining one's lifestyle and managing increased medical costs and other unforeseen expenses that often arise in later years.

Importance of Self-Sufficiency in Retirement

Retirement is often called the golden years when individuals can finally enjoy the fruits of their labor and pursue their passions without work constraints. Achieving a comfortable and successful retirement requires diligent planning and saving throughout one's working years. Social Security payments, determined by your earnings history, will provide a fixed amount plus cost-of-living increases in the future. However, with the decline in companies offering pensions, personal savings have become increasingly important. Time is of the essence: the magic of compound returns is a crucial factor in retirement planning. Thanks to the compounding effect, starting your savings as early as possible allows your investments to grow exponentially. Every dollar saved today has the potential to multiply significantly by the time you retire.

Limited Funding Options for Retirement vs. Education

While students have access to scholarships and financial aid to help them pursue higher education, adults have fewer options to fund their retirement. Social security and personal savings are the primary sources of retirement income, highlighting the importance of personal savings. Without a focus on saving throughout your adult life, you may jeopardize the security of your retirement. In contrast, students can obtain college funding from a variety of sources. If family resources, such as a college savings account, aren't available, students can seek financial aid, federally guaranteed student loans, grants, and scholarships.

Exploring College Savings Strategies

Scholarships, Grants, and Financial Aid

Scholarships and grants are critical components of college funding, providing necessary aid that does not require repayment. Scholarships are typically merit-based, awarded for academic or athletic excellence, while grants are often need-based. However, you can not count on receiving anything, regardless of how special we feel our own child is. Completing the Free Application for Federal Student Aid (FAFSA) is essential for accessing these forms of aid, as it is the method to determine eligibility for federal, state, and institutional support. There are many planning strategies that you can implement to maximize aid eligibility. But this highlights the need for advance planning to lessen potential strains on your retirement nest egg. Additionally, work-study programs offer opportunities for students to earn money while contributing to their education costs, further alleviating financial burdens.

Balancing Retirement and College Saving Goals

Setting Realistic Savings Goals

When balancing retirement and college saving goals, starting with a clear, realistic objective and plan is essential. At the same time, a general rule of thumb is to aim for saving around one-third of college costs while steadily contributing to your retirement fund. This strategy reduces the financial burden by relying on scholarships and financial aid to cover the remaining college expenses. For retirement, the recommended saving rate is 10% to 15% of your income, ensuring you build a substantial nest egg over time. It is easier said than done in today's world of stressed cash flows.

Reviewing and Adjusting the Plan Periodically

The financial landscape and your personal circumstances can change, making reviewing and adjusting your savings plans crucial. This might mean increasing your retirement contributions as your income grows or adjusting your college savings as your child gets closer to college age. Financial advisors often recommend an annual review of your financial plan to make necessary adjustments in response to changes in your financial situation, market conditions, or tuition costs. This proactive approach ensures that your retirement and college savings goals remain on track.


Navigating the intricate balance between retirement savings and funding your child's education underscores the importance of establishing clear financial priorities and strategies, and it is one of the most challenging decisions I regularly address with my financial planning clients. Understanding the unique challenges and opportunities that each goal presents—from the criticality of early and consistent retirement contributions benefiting from compound interest to the versatile funding options for education—it becomes evident that a well-structured plan is crucial. The insights from a comprehensive financial plan will help you find the proper balance between your best intentions and the negative impact on your future retirement readiness. 

As families strive to meet their retirement and educational savings goals, it becomes clear that a personalized strategy incorporating both savings objectives can significantly alleviate the financial strain of achieving these dual objectives. By seeking professional advice with us at Financial Life Planning, individuals can navigate this highly personal, complex terrain more effectively. For those looking to tailor their financial planning to encompass these critical life stages, click the Free Consultation button below and take the first step towards crafting a balanced financial future.

Edward C. Goldstein, CFP®, MBA, President
Financial Life Planning, LLC
10,000 Lincoln Dr. East, Suite 201
Marlton, NJ  08053
Phone: 856-988-5480
Fax: 908-292-1040