Friday, June 27th, 2014...12:27 pm

Save for college, retirement or both?

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With two competing financial needs and often limited funds, what’s a parent to do?


Life is full of choices. Should you take the afternoon off to play golf or stay and work? Make dinner at home or go out? Exercise before work or sleep in?

Some choices, though, are much more significant. Here is one such financial dilemma for many parents: Should you save for retirement or college?

It’s the paramount financial conflict many parents face, especially as more couples start having children later in life. Should you save for college or retirement? The pressure is fierce on both sides.

Over the past 20 years, college costs have grown roughly 4 to 6 percent each year — generally double the rate of inflation and typical salary increases.

A recent survey showed that a “moderate” college budget for an in-state public college is nearly $100,000 for four years. The price for four years at an average private college is now hitting $192,876, and a whopping $262,917 at the most expensive private colleges (Source: College Board’s Trends in College Pricing 2013/2014 and assumed 5% annual college inflation).

And that’s assuming the child graduates in four years, as many are taking longer to finish due to change in majors or other circumstances. Parents may also have more than one child, adding to the strain. Yet without a college degree, many jobs and career paths are off limits.

On the other side, the pressure to save for retirement is intense. Longer life expectancies, disappearing pensions and the uncertainty of Social Security’s long-term fiscal health make it critical to build the biggest nest egg you can during your working years.

Steve Finkelstein

Steve Finkelstein

In order to maintain your current standard of living in retirement, a general guideline is to accumulate enough savings to replace 60 to 90 percent of your current income in retirement — a sum that could equal hundreds of thousands of dollars or more. And with retirements that can last 20 to 30 years or longer, it’s essential to factor in inflation, which can take quite a bite out of your purchasing power and has averaged 2.5 percent per year over the past 20 years (Source: Consumer Price Index data published by the U.S. Department of Labor, 2013).

So with these two competing financial needs and often limited funds, what’s a parent to do? Answer: Retirement should always win.

Saving for retirement should be something you do no matter what. It’s an investment in your future security when you’ll no longer be bringing home a paycheck, and it generally should take precedence over saving for your child’s college education.

It’s analogous to putting on your own oxygen mask first, and then securing your child’s. Unless your retirement plan is to have your children on the hook for taking care of you financially later in life, retirement funding should come first.

And yet it’s unrealistic to expect parents to ignore college funding altogether. And that approach really isn’t smart anyway because regular contributions — even small ones — can add up over time.

Megan Gehrman

Megan Gehrman

One possible solution is to figure out what you can afford to save each month and then split your savings, with a focus on retirement. For example, you might decide to allocate 85 percent of your savings to retirement and 15 percent to college, or 80/20 or 75/25, whatever ratio works for you.

Although saving for retirement should take priority, setting aside even a small amount for college can help. For example, parents of a preschooler who save $100 per month for 15 years would have $24,609, assuming an average 4 percent return. Saving $200 per month in the same scenario would net $49,218.

These aren’t staggering numbers, but you might be able to add to your savings over the years, and if nothing else, think of this sum as a down payment — many parents don’t save the full amount before college. Rather, they try to save as much as they can, then look for other ways to help pay the bills at college time.

Like what?

• Loans — Borrowing excessively isn’t prudent, but the federal government allows undergraduate students to borrow up to $27,000 in Stafford Loans over four years. These loans come with an income-based repayment options down the road.

• Scholarships — Merit scholarships are often related to academic performance, but can also be given to a candidate displaying artistic or athletic excellence, or sometimes a combination thereof.

• Living at home — Although most families prefer that the graduate has the true “college experience,” some students are saving in cost by living at home for a period of time.

• Three years instead of four — The easiest way to accomplish this is by taking some college level courses during high school.

• Don’t attend college — In a June 2013 New York Times article, a senior vice president at Google responsible for hiring practices at the company noted that 14 percent of some teams included people who never went to college, but who nevertheless possessed the problem solving, leadership, intellectual humility and creative skills Google is looking for. One more reason to put a check in the retirement column.


Steven C. Finkelstein is president and a Certified Financial Planner, Practitioner; and Megan E. Gehrman is a Certified Financial Planner, Practitioner at Sterling Retirement Resources.

For a complimentary consultation, contact Finkelstein at 763-762-3400 or:, or visit:

Securities and advisory services offered through Cetera Advisor Networks LLC Member FINRA/SIPC. Cetera is under separate ownership from any other named entity.


(American Jewish World, 6.20.14)

1 Comment

  • are you sure by doubling the amount you save each month, you would double what you have after 18 years? I think you would have a lot more because of compounding.

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