Should You Save for Retirement Rather Than Fund Kids’ College?

That’s a big reason why financial advisers recommend saving toward retirement — optimally, 10 to 15 percent of your pretax earnings — before funding anything else and not putting yourself in the red with college costs.

“Retirement savings are intended to provide a comfortable life in the latter stages when income generation can be challenging due to age, health issues or the changing job market,” says Leo Chubinishvili, a CFP with Access Wealth in East Hanover, New Jersey. 

Without adequate savings, older adults risk facing financial insecurity when they are least capable of addressing it, he says.

2. They have other options to pay for school

There are ways to fund higher education that don’t exist for retirement, starting with an expansive federal loan program and student financial aid, and numerous other avenues to reduce or defray college costs. 

For example, your kids could choose to go somewhere that costs less — an in-state university over out-of-state campuses, or public schools over private ones. They can do their first two years of undergraduate study at a much cheaper community college. 

They can work part-time, perhaps in a federal work-study program, earning money to help pay for school and putting some skin in the game. If they’re studying at a local college, they can live at home and save on room and board. They can apply for grants and scholarships. If they serve in the military, they can obtain college funding through the GI Bill or another service program. 

Sure, there are ways to lower your living costs in retirement, such as moving to a cheaper city or state. But you won’t be able to apply for a grant to do it. Before writing that tuition check, have candid conversations with the kids or grandkids about the long-term financial impact for you and the levers they might use to creatively fund college. 

3. Student debt can be managed; retirement debt can’t

No parent wants to burden their kids with a lifetime of debt. But college loans, if used judiciously, do provide a structured way for students to pay off educational costs, and numerous paths to debt relief or forgiveness for borrowers who have lower incomes or go into public service, working for a government or nonprofit. 

For example, the U.S. Department of Education recently expanded income-driven repayment options for federal student loan borrowers with lower earnings. The new SAVE (Saving on a Valuable Education) plan reduces qualifying borrowers’ monthly payments (from 10 percent of discretionary income to 5 percent) and will forgive remaining balances for some borrowers after as few as 10 years of repayments, compared with the standard of 20 to 25 years.

By contrast, if making college payments leads you to have a cash crunch later, you could end up with hefty credit card bills or personal debt in retirement as you try to make ends meet. Banks and lenders won’t be nearly as forgiving or flexible with you if you’re deep in debt. 

People ages 50 to 64 have average credit card balances of $7,200, and individuals 65 and older owe an average of $4,700, per data from the credit bureau TransUnion. With credit card interest rates averaging about 21 percent, any credit card debt you amass can quickly snowball.

4. You could leave your future self financially vulnerable

Slowing your saving or parting with money you’ve put away could lead to hardships in later life. Is paying exorbitant tuition now worth risking poverty or financial instability in your golden years?

“I’ve seen a lot of people committing slow financial suicide to make everybody else happy,” Whitney says. Before you send that tuition payment, have a financial adviser run some income and expense numbers for you. Otherwise, he says, “you’re just guessing” about the long-term impact of college costs. 

For example, significantly cutting into your present or future savings could leave you more reliant on Social Security. That can be a dicey proposition. The average retired household has roughly $4,000 per month in expenses, according to the financial services firm TIAA — more than double the average Social Security retirement benefit ($1,840 a month in August 2023).

Even if you feel like you’re leaving yourself enough to cover basic living costs, keep in mind that health care expenses typically increase as we age. The average 65-year-old couple in 2023 will need $315,000 saved to cover health care in retirement, according to Fidelity, and nearly 70 percent of people 65 and up will need long-term care at some point, according to federal data.

“Having robust retirement savings can help mitigate the financial strain caused by unforeseen medical emergencies or long-term care needs,” Chubinishvili says.