Financial times are tough for many, so it has forced people to make a choice ï¿½ 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 ï¿½ a financial adviser at Savant Capital Management, an Illinois-based investment and wealth firm ï¿½ compared the situation to when there is an emergency on an airplane.
ï¿½If youï¿½re on a plane and the oxygen masks drop down, put yours on first, and then you can assist the others sitting around you,ï¿½ Lindell said.
Hereï¿½s why the theory makes sense:
Thereï¿½s no such thing as ï¿½retirement loansï¿½
ï¿½You can borrow for college; you canï¿½t borrow for retirement,ï¿½ 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 donï¿½t want to risk having to just ï¿½get byï¿½ 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 Corporationï¿½s website, BetterInvesting.org, 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.
ï¿½Youï¿½re giving up flexibility youï¿½d have by saving in a less restrictive type of account that would allow you to adapt more easily to changing circumstances,ï¿½ she wrote.
For example, by saving for retirement, you can still help your kids in other ways even if itï¿½s not in terms of their college education.
ï¿½They may run into financial problems well into adulthood ï¿½ say, when theyï¿½re trying to figure out how to pay for their own retirement and their childrenï¿½s higher education. If youï¿½re financially healthy and willing, you can help them, or maybe even put away some money for your grandkids. But if youï¿½re in financial ruin because you only saved for their college diploma, you canï¿½t,ï¿½ Williams added.
Youï¿½ll be maximizing your ï¿½free moneyï¿½
CNBCï¿½s Senior Personal Finance Correspondent Sharon Epperson recommends your very first step be contributing to your workplace retirement plan or 401(k).
ï¿½Plan to contribute up to the employer match. You want the tax savings and donï¿½t want to miss out on that free money,ï¿½ Epperson says.
If you donï¿½t have a workplace plan, put your money into a Roth IRA if you can.
ï¿½The 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,ï¿½ she adds.
Donï¿½t jeopardize your own future financial security ï¿½ look out for No. 1 and the rest will fall into place more easily.