Should You Save for Retirement or College?

Workers with a bachelor’s degree make approximately 58% more than those whose highest level of education is a high school diploma, so it makes sense that many parents believe a college education is the best opportunity for their children to succeed financially. But college is expensive, and the cost keeps rising. That means the burden of student loan debt is increasingly weighing on today’s college graduates. Consider this: Americans today owe about $1.6 trillion in student loan debt, which is more than double compared to the previous decade.

That leaves parents facing mounting pressure to help fund their children’s college education in hopes of giving them the best opportunity for success. At the same time, parents are staring down another hefty financial goal: saving for retirement. How can you save for multiple goals at the same time?

When faced with the choice — retirement savings or college savings — what should you do? Should you invest in a 529 plan for your children’s future education or a 401(k) for your own retirement? Before you make any moves, know your options so you can make the best choice for your family. Here’s what you need to know.

Funding Retirement: The Ball Is in Your Court

The reality is that financial support for seniors and retirees is limited — and it continues to dwindle, which means your primary goal should be to prioritize saving for retirement. Pension plans are falling by the wayside; the Federal Bureau of Labor Statistics reported the number of company-sponsored pension plans fell from around 103,000 in 1975 to under 47,000 in 2017. Planning to rely on Social Security benefits? Think again. In December 2023, the average monthly benefit for retired workers was $1,905, according to the Social Security Administration. But based on 2022 data from the Bureau of Labor and Statistics, monthly average annual household expenditures for retirees was $4,581.25.  

Consider this: education costs often are covered by at least partial financial aid, whether scholarships, grants or loans. But there are no loans to cover retirement necessities such as housing, utilities and groceries.

That means funding your retirement is up to you. By contributing to a 401(k) or IRA, you can help offset any shortfalls between your expenses and your pension or Social Security payments. Continuing to work into your golden years might also be an option, but beefing up your retirement savings is a better one. Remember that prioritizing retirement savings reduces the risk that the financial responsibilities of your care in later life will fall on your children. 

Paying for College: Explore Your Options

There is good news: There are plenty of options to fund college education that don’t include taking on debt, as well as options that can significantly reduce student loan debt.

Your student can seek scholarships and grants, apply for financial aid or participate in a work-study program to help cover their higher education costs. A recent Sallie Mae report found that 61% of students used scholarships to help cover the cost of their education — and aid isn’t just for students with exceptional need or exceptional grades. Plus, scholarships and work studies are resume-builders, helping set your student up for career success in the future.

As tuition costs rise, there are other creative ways to reduce the price tag of a college degree. Students can seek lower-cost educational opportunities, such as public universities. They may reduce the number of semesters to a degree by taking advantage of high school programs such as dual enrollment or Advanced Placement exams to earn college credit before they enroll. Or they may choose to attend community college before going to a higher-priced university to reduce the costs of tuition.

Another Option: Flexible Savings Vehicles

Rather than fretting about saving for college or retirement, focus on establishing a nest egg. While some investments are subject to strict rules — for example, a 529 plan must be used for education and funds from a 401(k) can’t be withdrawn until age 59 ½ without penalties — other investments offer more flexibility (though perhaps without the same tax advantages).

Investing in an IRA makes it possible to start saving now and decide whether to allocate those funds to higher education or retirement in the future. This is because you have the option to withdraw funds penalty-free, as long as they’re used for tuition, books or other qualified educational expenses for a spouse, child or grandchild.

Mapping Your Personal Savings Plan

Saving for your family’s future is important. Talk to a Farm Bureau agent or financial advisor about the best decision for your own financial situation.