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Are You Saving For Retirement – Or College?

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What are you saving for? Via Shutterstock

A new survey says more of us are saving for our kid’s college fund than our own retirement. Oh, snap! I’m not pointing any fingers, but the data is pretty damming…What I’m curious about is WHY people choose to save for college instead of retirement. Maybe you can help me understand this issue.

Are you saving for retirement or college?

According to a recent poll from RBC Wealth Management, 49 percent of Americans place greater importance on helping their children pay for their education than they do on saving for their own retirement. I can understand the urge, as we have two 529 accounts with regular withdrawals set up for each of our children. However, we are not going whole hog to save for their college. Our goal is to save about half of their college expenses in the 529s, then pay for the rest out of pocket, with scholarships, with financial aid, or with loans in their names.

How you prioritize saving depends on your age

Millennials (ages 18 to 34) are the most likely to prioritize financing their children’s education ahead of their own retirement. In fact, 60 percent of Americans in that age group said saving for their kids’ education was more important to them, compared with 43 percent of GenXers (ages 35 to 54) and only 28 percent of Baby Boomers (ages 55 and older). Our very own Dacia Daly is bucking that trend by saving for retirement at age 23.

The irony is that if millennials started saving for retirement in their 20s, they would need to save much less money over their lifetime in order to retire comfortably. Money grows over time, so the longer it has to grow, the bigger it gets.

How you prioritize saving also depends on your household income

Planning is especially critical for families with lower household incomes. According to the RBC Wealth Management survey, Americans with household incomes under $50,000 were the most likely (57 percent) to place saving for a child’s education ahead of their own retirement needs.

Why save for college instead of retirement?

Perhaps the idea of saving for retirement is too overwhelming. Easier to save for college – which is coming up sooner than retirement – and has a very specific number attached to it. Use this super simple college expense calculator, which factors in entry year, to estimate how much college will cost. My only problem with this college calculator is that it doesn’t differentiate between public and private schools, and 2- and 4-year schools.

Why save for retirement instead of college?

The sad truth is, there is no financial aid for retirement. If you don’t have a nice nest egg saved up, you can rely on social security…if it is still around. Even if you are able to collect on social security, chances are that it is not going to be enough to support your current lifestyle. Plus, with all the holes in Medicare, you may not get the treatment you’d like or deserve if your health declines as you age.
“As the cost of a college education in the U.S. continues to rise, parents will naturally want to help their kids get through school without accumulating a mountain of debt,” said John Taft, CEO of RBC Wealth Management in the U.S. “But with the gap between how much Americans have saved and what they will need to retire comfortably widening, we advise that people make funding their own retirement a priority. There are no grants, scholarships, or federally guaranteed loans to support them when they leave the workforce.”

Are you saving for retirement – or college?

 

About the poll – These are some of the findings of an Ipsos poll conducted on behalf of RBC from October 6 to October 9, 2015. For the survey, a sample of n=2009 Americans was interviewed online via Ipsos’s American online panel, of which 569 are parents with children in the household. The precision of Ipsos online surveys is measured using a Bayesian credibility interval. In this case, with a sample of this size, the results are considered accurate to within ± 4.7 percentage points percentage points, 19 times out of 20, of what they would have been had all American parents been polled.
 

Comments

  1. Sarah H. says

    I am saving for college more than retirement in my personal savings. My husband has retirement savings through work — with matching employer contributions (there are no “employer contributions” for my kids’ college).
    But in all honesty, it was my family experience that has led to my priorities. My mom scrimped and saved for retirement, and did all that she could to help us with college expenses, and then died at 48. My dad took their retirement nest egg and completely blew it on things for his new wife (nice European vacations, jewelry, good cars, etc.)…. and didn’t give us a dime to help us out with college after Mom’s death.
    Also, financial assistance for college is almost non-existent! If we don’t help our kids (one kid is already done, and was awarded best undergrad at his college — but got very few scholarships and next to no aid — so I know whereof I speak), there is no college for them

    Reply

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Nah, I don't need to save money.