Sunday, January 29, 2012

Saving for Retirement vs. Kids' College

Last week, Katie asked about my thoughts on saving for retirement vs. saving for college for our kids. (See her full comment here.)

I heard somewhere on the radio years ago that experts recommend parents focus on saving as much for retirement as possible before even thinking of saving for their children's college costs. After all, their children can get scholarships and take out low-interest loans. I don't believe they offer scholarships for retiring. What are your thoughts, LMM?

My opinion: It's far more important to save for retirement than for your kids' college. Period.

As Katie points out, there are no scholarships for retirement. Furthermore, there are no loans, and I am sure not counting on social security to be around in another 30 or 40 years. Therefore, Peanut and I will be focusing on our retirement rather than stashing away cash to pay for something that could be funded in other ways. We do intend to save money for our kids' college funds - just not at the expense of our own security.

Our personal experiences are vastly different from each other: his parents were unable to help him with college at all so he took out loans for the entire cost of his education. My parents gave me a free ride for my undergraduate studies. My graduate degree was paid for by my employer (1/3) and me, through savings and loans.

We are choosing a middle ground for our kids. I think the big thing that Peanut and I will focus on with our kids is understanding what college costs mean and how they affect the rest of their lives, because of our own experiences.

In Peanut's case, his parents had never been to college and they didn't understand the non-obvious differences between private, public, and for-profit schools or the nuances of the different loans that were taken out for him, some in his name and some in theirs. Had he gone to a state school instead of starting out at a private university and finishing at a for-profit school, he could probably have graduated with much less than $70,000 in loans. He also feels that his education from a for-profit school was not as good as another school might have been, because at a for-profit school, the students are essentially customers and you keep the customers happy by never failing them and you don't push them too hard. (He managed to get a good education for himself and got a good job that he likes, but many of his classmates were not so lucky, and it doesn't have anything to do with the recession.)

In my situation, I felt a lot of resentment about the deal that was offered to me. I didn't want to go to a religious college, but that was the deal that I was given: church school or I was completely on my own. I probably wouldn't have qualified for any financial aid because of my parents' income, but I didn't even know how to find out, because they refused to help me discover other options besides the school they wanted me to go to. I didn't get to do any campus visits other than their choice, and they wouldn't provide their financial information for a FAFSA for any other school (they filled it out and mailed it in for the one they wanted me to attend; I didn't get to see it)*. I didn't feel a lot of ownership over my education. I didn't try for any scholarships or grants. I made a point not to get attached to the school or the people there, I didn't work terribly hard on my grades and I left campus every weekend. In short, I got a degree, but I didn't have a nice college experience, which is as important as the education you're paying for.

All of this is in direct contrast to my graduate education, which I undertook completely on my own, and which was a totally different experience in every possible way. I think that's probably true of grad school in general, since you're older and you're not going because, well, you know, you graduated high school and now you go to college because that's just what you do. But determining a school for myself, comparing my options, and the entire financial aid process were all new experiences for me and I took a lot of ownership for that, and I am very proud of my straight-A grad school GPA, earned while I was working full time.

Because of these experiences, Peanut and I would like to educate our kids about what college costs and how those costs can affect the rest of their lives. We'd like to come up with an arrangement that encourages them to take ownership of their education from the very beginning, and to participate in this transitional period of their lives by paying some of their own way. We plan to be honest with them about our financial situation and what we can afford to help them with and why we choose our priorities. We're already maxing out Roth IRAs each year and contributing to our employer plans up to the match, and otherwise building a secure present and future for our kids. We'll be able to save something for them for college, but we'll be focusing on increasing our retirement savings at the same time, so their educational accounts will always be a step below our retirement in priority.

What do you think? Do you prioritize saving for your own retirement or your kids' college funds first and foremost, and why?

*To be fair, my parents both graduated from that school, and they now live and work there. They weren't being unduly mean - they felt it was important for me to live in a Christian environment and find a spouse who was part of that lifestyle. They both loved going to school there, and they really couldn't comprehend that their kids wouldn't also love it. Their method was faulty, but their hearts were in the right place.

1 comment:

  1. We barely have enough money to set aside for retirement right now! Haha
    But, we are making saving for retirement a priority, and while we would eventually like to be able to set some money aside for college expenses for theoretical kids, we also won't prioritize it over retirement.

    Michigan State ended up being a great fit for both of us, but neither of us considered many other options because of the cost. I'd love to give my children the opportunity to apply to any school they want, without worrying about going nearly $100,000 in debt. I think either finding scholarships, or considering loans, and working/saving are valuable, and I don't want my kids to get through without doing those things, but I don't want finances to be the primary focus when it comes to picking a school.

    We'll see what happens by the time we have kids, though!


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