Employees face tough saving choice: College or retirement
December 31, 2008 by Bill MeltzerPosted in: Compensation, Employee education, In this week's e-newsletter, Latest News & Views
In an ideal world, employees would have an overall financial plan to cover all of their key savings goals.
But in the real world, many folks face some tough decisions:
Should they focus first on saving for their kids’ college education? Or should they save for retirement through your company’s 401(k) plan?
Assuming it’s truly an either/or proposition, many financial planners say it’s better to focus first on creating a retirement nest egg. Here’s why:
Holding retirement assets like 401(k)s and IRAs won’t affect a child’s eligibility for financial aid.
In fact, participation can help cut out-of-pocket college costs, because it reduces net income from salary. But unless the employee or a spouse is in line for an old-fashioned pension, retirement savings largely falls on the employee’s shoulders.
Social Security may help a bit. But unless workers participate in 401(k) and/or an IRA, most will someday be faced with three unpleasant options: delay retirement, don’t retire at all or retire to a lower standard of living.
Six helpful funding sources
As expensive as college is – currently about $51,000 to $121,500 for four years – there’s at least the potential for some wiggle room in paying for it. Six potential sources:
- The employee and/or the dependent can take out relatively low-interest loans for tuition, books, etc.
- The child may qualify for a scholarship or grant
- Your company may offer tuition assistance or similar benefits
- The employee’s own parents (the child’s grandparents) may be in position to offer assistance
- The dependent may consider – or even prefer – a cheaper state school or community college and then transfer credits, and/or
- The child may work to contribute toward his or her own expenses.
January 22nd, 2009 at 4:03 pm
Education is important & having the applicable experience is more so on a resume.
I’m already discussing the college options with my 13 year old. Community college for the basics, then transfer to state or U. Work through college, so when she’s ready to hit the big time, she’ll already have work experience to give her the advantage. With luck she’ll have a great job early on.
March 26th, 2009 at 1:54 pm
There are additional choices in paying for college that you are not taking into account. Service in the Armed Forces will give you an education in itself as well as help pay for college. Or more basically yet….get a job and work your way through. Teach self sufficient behaviors to your kids so that you are not still supporting them when you want to retire. The other option is to pay for everything for the kids then when they can not retain a position due to having to do actual “work” at work, you can pay for a therapist to help them understand how rough they have it!!
March 26th, 2009 at 2:38 pm
Education is important, but here in California, if you can afford childcare out of pocket, you can afford college out of pocket. A child can do 2 years of community college for $1500 on an auto transfer into the UC system, which costs about $20K for the last two years. The child can earn 1/2 of that just working a summer job, so parents are on the hook for $52 a week for 4 years. Worst case, slow your 401(k) deferrals down for the duration of the time they are in college – but don’t save for college when you are young at the expense of your 401(k)