The College Savings vs. Retirement Savings Battle
Two of the most important savings goals for Americans today are college and retirement. Today’s families face an impossible balancing act. Experts tell us that retirement should be your most important goal, while the mother hen instincts in all of us with children compel us to sacrifice our future to provide the best for them.
Is it really that black and white? In this corner, save as much as you can for retirement and in the other save everything so Junior can go to that brand name college?
Here We Go, so What’s the Scenario?
Let’s say your family is blessed with a child when you’re 30 years old. We can examine both savings goals individually and see where that might get us. Let’s assume you have a lump sum of $2,000 plus $500 per month to invest and our savings grow at 5% per year. (Don’t like my numbers? Try it yourself with different assumptions here. )
…Let’s get ready to RUUUMBLE!
In This Corner We Have Retirement
If you focus 100% on retirement by the time you reach 65 you could have $580,000! Great for you, but what about Junior?
In This Corner We Have College Savings, Then Retirement
If you save 100% for Junior’s college fund and pick up retirement savings after college starts you could have $180,000 to go towards that Ivy League school. I say towards because as of 2012 according to The College Board, at $53,000 a year it would cost a whopping $212,000! If you save the rest of your money until age 65 you could put $165,000 towards retirement. This is a little better because at least you have SOME money for retirement but that’s less than half as much as focusing on retirement alone.
But Can’t We All Just Get Along?
What if we save for both goals TOGETHER? If you save half for college and the other half for retirement we could have $90,000 for Junior and $290,000 for retirement. While not enough for an Ivy League college, it more than meets tuition and board for a state school. While not the half a million plus retirement nest egg you’d have by forgetting all about Junior, you could save nearly double what you’d have if you waited until he got to college.
Make the Most of What You Have
A wise man once said “The happiest people don’t have the best of everything; they just make the best of everything they have”. You probably have different circumstances than what I just described but no matter what they are you should look to save something towards all of your important goals and avoid sacrificing everything for one or worse yet, not doing anything.