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September 2016
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Don�t Hurt Your Retirement by Over-saving for College
Why you should prioritize retirement over education

Financial times are tough for many, so it has forced people to make a choice � should the money you are saving go into a retirement fund or a college fund? Financial experts agree that saving for retirement first is actually more logical.

In a 2014 article by Geoff Williams of U.S. News & World Report, Brent Lindell � a financial adviser at Savant Capital Management, an Illinois-based investment and wealth firm � compared the situation to when there is an emergency on an airplane.

�If you�re on a plane and the oxygen masks drop down, put yours on first, and then you can assist the others sitting around you,� Lindell said.

Here�s why the theory makes sense:

There�s no such thing as �retirement loans�

�You can borrow for college; you can�t borrow for retirement,� Williams explained.

On the other hand, students have a host of options such as scholarships, grants, federal work study programs and student loans to aid in the cost of higher education. There is also the option to begin at a more cost-effective community college. While kids can go to college on the cheap, Williams summarized, you don�t want to risk having to just �get by� during retirement.

College savings can count against educational financial aid

Financial services corporate content creator Amy Buttell wrote in an article on the National Association of Investors Corporation�s website,, that most college saving options are harmful in the federal financial aid formula. That could include Section 529 plans, Uniform Gift to Minors Accounts and prepaid college savings accounts, which are available in about 14 states.

You have more options in the long run

With college savings, you are hypothetically putting all your eggs into one basket, Buttell said.

�You�re giving up flexibility you�d have by saving in a less restrictive type of account that would allow you to adapt more easily to changing circumstances,� she wrote.

For example, by saving for retirement, you can still help your kids in other ways even if it�s not in terms of their college education.

�They may run into financial problems well into adulthood � say, when they�re trying to figure out how to pay for their own retirement and their children�s higher education. If you�re financially healthy and willing, you can help them, or maybe even put away some money for your grandkids. But if you�re in financial ruin because you only saved for their college diploma, you can�t,� Williams added.

You�ll be maximizing your �free money�

CNBC�s Senior Personal Finance Correspondent Sharon Epperson recommends your very first step be contributing to your workplace retirement plan or 401(k).

�Plan to contribute up to the employer match. You want the tax savings and don�t want to miss out on that free money,� Epperson says.

If you don�t have a workplace plan, put your money into a Roth IRA if you can.

�The after-tax money that you put in comes out tax-free in retirement. Plus, if you must dip into this account to pay for college, you can do so without paying a penalty,� she adds.

Don�t jeopardize your own future financial security � look out for No. 1 and the rest will fall into place more easily.


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