Saving for retirement vs. college

"Tough Choices: Helping Parents Save for College and Retirement"

From a financial standpoint, it's evident that for most parents, funding retirement should take precedence over funding college education.

But a family's decision is often an emotional rather than a financial one, say the planners interviewed in a June 2001 article in Journal of Financial Planning, which is published monthly by the Financial Planning Association.

"The most important financial goal you will have in your life is providing for your retirement," said Donald Sowa, a certified financial planner with Sowa Financial Group, Providence, R.I. Sowa said that in dealing with clients, he emphasizes that if a child reaches age 18 and the family hasn't saved adequately for college, there are still options, such as financial aid. On the other hand, if a client reaches age 65 and hasn't saved for retirement, there are no options.

Raymond Loewe, a chartered life underwriter and chartered financial consultant with the Financial Resources Network, Marlton, N.J., specializes in helping parents plan for college education. Loewe said he has found that the question of how clients save for education and retirement "really depends more on how parents feel than on the economics of the situation. Parents are willing to put themselves at risk if they really believe in what they are doing for their kids."

The planners interviewed for the article, "Tough Choices: Helping Parents Save for College and Retirement," say the first key in helping clients make this decision is to stress the trade-off. Several planners say they'll tell a client that if they want to fully pay for a child's education, then they won't be able to retire until a later age. If they choose to fund less than 100 percent, say half of it, then they'll be able to retire a certain number of years sooner.

"No more than 10 percent of clients will come in and say they want their children to pay a portion of college costs," said John Brown, a certified financial planner with Brown Financial Advisory, Fairhope, Ala. "But I find that percentage changes as I give clients permission not to pay for 100 percent of the education of a child."

Planners also encourage their clients to level with their children about the cost of education and their ability to pay all or a portion of it and to realize that the child may need to take some responsibility to pay. If a parent says they can only pay $10,000 a year, then a child wanting to attend a $25,000-a-year university knows he or she will have to make up the difference.

The planners stress the need for parents to start saving early if they want to fund their children's education. However, people who save for college are the exception, not the rule.

Zall, Bureaucratus columnist and a retired federal employee, is a freelance writer based in Silver Spring, Md. He specializes in taxes, investing, business and government workplace issues. He is a certified internal auditor and a registered investment adviser. He can be reached at miltzall@starpower.net.