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Your Retirement or College for the Kids - Which Will It Be?

Your Retirement or College for the Kids - Which Will It Be?

| December 17, 2018

Rowe Price’s 2018 Parents, Kids & Money Survey found that 74 percent of the parents with young children are prioritizing by saving for the kids’ college over saving for their own retirement.

So, what does this mean for their retirement? It could be in trouble.

Albert Einstein is said to have stated that the most powerful force in the universe is compound interest…and we kind of agree. Time outweighs the power of a dollar tenfold. And, unfortunately, time is something you can never get back.

Imagine your goal is to have $1,000,000 when you retire at 65. If you start saving for this goal when you are 25 years old, you would need to save around $286 per month. If you wait just 10 years to begin saving, you would need to increase your monthly savings to almost $671 per month. Not only will you need to save $385 more per month to achieve the same $1,000,000, but you’ll also miss out on $104,000 of compounded interest.*

Time is powerful. You might be thinking…how can I start saving for retirement when I have a looming five or six-figure education bill in front of me?

We have a saying. You will never change your mind based on what you know, but you might change your mind based on new information.

What if you could do both?

Something that is often forgotten when it comes to saving is utilizing tools that get Uncle Sam to help with the bill.

For illustrative purposes, let us assume you are saving $1,000 per month and are in the 24 percent federal income tax bracket. If you make college the priority and put this back in a 529 or a like-kind vehicle, you could have around $183,000 after 10 years. However, if you make retirement the priority, this same $1,000 per month would be worth almost $227,000 after 10 years.* Imagine, also, that you have other monies you are currently using on insurances, other taxes or savings that could be maneuvered and maximized like this. We find it all the time.

And, there is more to this story. There was a great article written recently by the Wealth Management magazine. Kevin McKinley in The Dangers of Saving for College Instead of Retirement spoke about these same things as well as three other risks concerned with putting college savings as a priority over retirement—less liquidity, less investment options and less financial aid for your children.

We believe in education as much as anyone and make it our priority to help families design a plan that fits their unique situation to accomplish ALL of their goals. Laser focus can be a great thing, but it can also hurt you when you forget to look at the entire picture.

Warren Buffet famously stated, Someone is sitting in the shade today because someone planted a tree a long time ago. Don’t forget to plant your shade tree today no matter what your goals may be.


*Based on monthly compounding of 8% annually.

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