The Investment Dilema: College or Retirement

July 29, 2020

One of the strange things about this year is how long kids have been home from school.  However, the start to the new year is just around the corner.  College students, including one of my sons, will be heading back to campus in just a few weeks.  For me, that means I can look forward to a bursar bill in my near future! College costs have risen much faster than inflation over the past 30 years, and as a result, a dilemma that many parents face is how to finance college and still save for their own retirement.

Saving for college and saving for retirement are two of the most common goals our clients have.  The problem, of course, is that in many cases these two goals are competing for the same savings dollars. While we will need a lot more money saved for retirement, we have less time to save for college.  This adds to the urgency for both goals.

College savings is really a retirement problem for two reasons.  In phase one of the savings plan, college and retirement compete for the same piece of the pie.  We all have a finite number of dollars we can save each month.  In phase two of the college plan, the spending phase, the current tuition bills compete for cash flow; cash flow that might otherwise go towards retirement savings.  Shortfalls in savings and cash flow might be addressed by spending retirement savings, either through outright withdrawals or through loans against retirement accounts.  After effects can be felt long after college graduation as potential retirement savings is redirected to pay off the loans taken against the retirement accounts.

The bottom line is that your future must come first.  Unlike college, there are no grants or scholarships or loans for retirement.  On top of that, retirement is lasting longer and costing more.  A century ago, life expectancy in the United States was 45 years.  A few decades later when social security began in was 63 years.  Today, a woman turning 65 is expected to live until 86 and a man is expected to live until 84. (Source: Social Security Administration) Retirement can easily stretch into 30 years, up to a third of your lifetime.  Previous generations retired because they had to, they simply couldn’t work anymore.  Today, many people consider retirement to be the culmination their life’s work – an opportunity to enjoy life.  Instead of sitting on the front porch with a glass of lemonade, today retirees are immersing themselves in hobbies, spending time and money travelling, dining out, and pursuing all manner of recreation.  While these are all positive developments in retirement in the United States, they will take money.  And if you prioritize college savings over retirement savings, you could find yourself living with your very well-educated children

Also, many employers match some portion of your retirement savings.  This is basically free money.  For example, if your employer matches 3%, the employer will contribute one additional dollar for every dollar you contribute up to 3% of your total salary.  At the very least, you should be contributing enough to fully capture the match.  Also, remember that retirement assets will not affect your student’s ability to receive financial aid. (Source:

In the meantime, college has gotten steadily more expensive.  According to the US Bureau of Labor Statistics, college costs have increased 63% since 2006, compared with just 21% for other items.  By 2022, four years at public university are expected to cost $151,858, while a private school education is expected to cost $314,245.  (Source:

If you find that you have neglected your retirement savings to save for or pay for college, it’s important that you get back on track as quickly as you can.  Make a plan and implement it.  Work towards contributing the maximum to your retirement plans.  For 2019, you can contribute up to $6,000 to an IRA, plus, if you are over 50, you can make an additional $1,000 contribution.  You will be able to contribute up to $19,000 in a 401k, with an additional $6,000 catch-up contribution if you are over 50. (Source:

Do what you can to save for college, but don’t neglect your retirement savings.  We all have a limited amount of resources available to us.  There are ways that students can help defray the costs through school choice, grants, scholarships, part-time jobs and loans. 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.


Securities and financial planning offered through LPL Financial, a registered investment advisor.  Member FINRA/SIPC