By CityTownInfo.com Staff
September 17, 2009
As more struggle to make ends meet in a difficult economy, many families are attempting to prioritize how best they should be saving their money.
"For more and more people, these two big needs, retirement and paying for college, are happening at exactly the same time," explained Greg Dosmann, a principal with financial services firm Edward Jones who was quoted in U.S. News & World Report.
Reuters reports on a recent study conducted by Fidelity Investments that seems to underscore this issue: It found that 43 percent of parents said they will need to delay retirement in order to pay for a child's higher education, up from 35 percent last year. Meanwhile, among parents with high school aged children, the study found that more have decreased the amount they are saving for retirement to cover college costs.
Nevertheless, many experts say that retirement should be the priority. "As you think about the college vs. retirement issue, keep one overriding fact in mind: You have less time to save for retirement than your children have to pay for college," noted Nick LaBarbera, a financial adviser with Edward Jones Investments in Texas, who was quoted on MySanAntonio.com. "If your children do take out some loans, they will likely have decades in which to repay them."
He therefore suggests contributing first to 401(k) accounts and IRAs, and then using whatever money is left to fund a college savings plan. Others stress that it's important to take advantage of employee matching 401(k) contributions.
"I would rank retirement first and college second because there are other ways to pay for college," said Lynn Mayabb, senior managing adviser for BKD Wealth Advisors in Kansas City, Missouri, who was interviewed in U.S. News. "There are no loans for retirement."
Experts also advise families to consider 529 plans for college savings and to evaluate financial aid, particularly before making a decision to withdraw money from IRAs or 401(k)s to pay for college. "If you pull out money from retirement accounts, that may reduce your subsequent financial aid package," cautioned Tim Higgins, a certified financial planner in Marlborough, Massachusetts.
But often prioritizing savings is based on a family's most immediate concern. Carl Wiley, 37, of Bayonne, New Jersey, makes sure to get the maximum 401(k) match from his employer annually. He admitted however, that he has not yet started thinking about college savings for his 3- and 5-year-old daughters.
But for Randi Mayer, 51, of Riverwoods, Illinois, saving for college is more important: Her 19-year-old son attends a public university, and her 17-year-old son is getting ready to enroll as well.
"Since college for us is more immediate at this point, probably a little bit more goes toward the college fund than towards the retirement fund," she said. "I feel like college is now and it will be a while until we retire."