College Tuition or Retirement: What’s the top priority in your household? Find out how affluent investors weigh in on the issue.
America’s investors must be listening to their financial advisors, who typically advise clients to save for retirement first and college tuition second. A new Millionaire Corner survey shows that investors are seven times more likely to identify “adequate retirement savings” – as opposed to college tuition - as their most significant financial concern.
In fact, retirement savings trumps the entire menu of financial worries, including job security, personal debt, home values, inflation and health care costs, while college tuition comes in dead last. Only 4 percent of investors identify college costs as their top financial concern, compared to nearly 28 percent who say they are most worried about saving enough money to last through retirement.
That makes a lot of sense to financial advisors who summon the airplane analogy: In the event of a sudden drop in cabin pressure, put on your own oxygen mask first, then help children who are traveling with you. The example serves to illustrate the importance of helping yourself first, so that you’ll be in a better position to help others. Parents who make saving for college tuition a priority may run the risk of running short of funds in retirement and becoming a burden on others, according to Jean C. Setzfand, vice president for Financial Security at AARP, an advocacy group serving America’s senior citizens.
College costs have risen steeply in the past four decades, said Setzfand, but so have the number of options for paying college tuition. Options for funding retirement are generally limited to working, and saving and investing part of each paycheck.
“Paying for college is not your only financial concern,” advises Saving for College, a leading college finance website. “Providing for your own retirement can be even more important since no one offers grants, scholarship, or federally guaranteed loans to support you when you leave the workplace.”
National studies show that most Americans run the risk of running out of money in retirement thanks to a combination of factors, which include record unemployment, declining wealth, low savings rates, investment losses and falling home values. Setzfand, of AARP, tells parents, particularly those facing hard financial choices, “Don’t feel guilty about putting retirement first.”
To better the chances of meeting both retirement and college tuition goals, Saving for College, recommends taking full advantage of employer sponsored retirement plans, such as a 401(k), and other retirement vehicles, such as IRAs. The accounts can offer tax advantages and employer matching funds. If possible, parents are also advised to start setting aside money for college tuition as early as possible, ideally in the child’s first year.