Retirement vs. College: Which Comes First?

It's the classic parental dilemma: your retirement accounts need funding, but so does your child's college fund. Both feel urgent. Both feel important. And for most families, there isn't enough money for both. So which comes first?

The Counterintuitive Answer

Here's the truth that might feel uncomfortable: your retirement should come first. Not because you're selfish. Not because you don't love your kids. But because it's actually better for everyone, including your children.

There are student loans, scholarships, grants, work-study programs, and payment plans for education. There is no equivalent for retirement. No bank will lend you money to fund your living expenses at age 75.

The Real Cost of Under-Saving for Retirement

When parents sacrifice their retirement savings for their children's education, they often end up becoming a financial burden on those same children later in life.

Consider this scenario:

• Parents divert $200,000 from retirement savings to pay for college
• At age 70, they have insufficient savings and need financial help
• Adult children now support aging parents while raising their own families
• The $200,000 "gift" becomes a multi-generational financial strain

The alternative: parents who prioritize retirement remain financially independent, never becoming a burden on their children. That independence is itself a gift.

The Math of Opportunity Cost

Money contributed to retirement accounts in your 40s has 20+ years to grow. That's the power of compound growth at its most potent.

The same dollar does more work in your retirement account because of the longer time horizon. And retirement contributions often come with additional benefits like employer matches, tax deductions, that college savings don't offer.

The Priority Framework

Financial planners generally recommend this order of operations:

1. Emergency fund: 3-6 months of expenses
2. Employer 401(k) match: This is free money. Always capture it
3. High-interest debt: Pay off anything above 7-8%
4. Max out retirement accounts: 401(k), IRA, HSA
5. Then college savings: 529 plans with whatever remains

This doesn't mean you ignore college savings entirely. It means you don't sacrifice retirement security to maximize college funding.

College Has More Funding Options

Education can be funded through multiple channels:

• Scholarships and grants: Free money based on merit or need
• Federal student loans: Relatively low interest rates with flexible repayment
• Work-study programs: Part-time employment during school
• Community college transfer: Two years at reduced cost
• In-state public universities: Significant savings over private schools
• Student employment: Working during summers and part-time

A student who graduates with $30,000 in loans and employed parents is in a better position than a debt-free graduate whose parents need financial support.

The Conversation with Your Kids

Being honest with your children about college funding is healthy:

• Set clear expectations about what you can contribute
• Encourage them to pursue scholarships and merit aid
• Discuss the trade-offs of different schools and their costs
• Help them understand that some student debt is manageable
• Frame your retirement savings as protecting them from future burden

Children who understand financial realities often make wiser choices, choosing schools with better financial aid packages, pursuing scholarships more aggressively, or selecting majors with stronger earning potential.

A Note on Financial Aid

Here's an interesting consideration: retirement accounts generally don't count against you in financial aid calculations, while 529 plans and other savings do.

A family with $500,000 in 401(k) accounts and $0 in college savings may qualify for more need-based aid than a family with $200,000 in retirement accounts and $100,000 in 529 plans. This isn't a reason to avoid 529 savings. The tax benefits usually outweigh the aid impact, but it's worth understanding how the system works.