Should I Save for College or Retirement?

Do you know what parents traveling with children are told to do when a plane’s cabin pressure drops in-flight? When the oxygen masks drop down, parents should put their own mask on first so that they are then able to clear-headedly secure a mask on their child.

The same rule holds true when it comes to saving for college versus saving for retirement: Put yourself first and save for your own future financial security. If you don’t, you won’t be in a position to help yourself or anyone else. Indeed, you may have to lean on your kids for financial support in retirement, but they might not be in a position to help you.

The cost of a college education today is staggering. But there have never been more options to pay for school, including scholarships, grants and loans, work-study programs and part-time work. Unfortunately, when it comes to funding your retirement, these options don’t exist except for employment. But that’s not a simple solution. Surveys show that unemployment rates remain high for workers older than 50.

If you’re in an “either/or” situation about funding college or retirement, choose retirement. If you’re in a position to save for both, that’s great, but you’ll want to talk to a financial adviser to make sure you’re on track for retirement security.

If you want to start crunching numbers, use AARP’s retirement and college savings calculators. But don’t stop there. You should also talk to a financial advisor who can help you chart a course to establish and reach retirement goals. Your advisor can also determine how much you can reasonably put toward your children’s education. In addition to a financial advisor, college-funding experts can identify avenues to pay tuition and give prudent advice based on your circumstances.

Whether or not you’ve spoken to advisers yet, make sure your student completes a Free Application for Federal Student Aid (FASFA), and then look into tax-advantaged savings options like state 529 plans. Other college-saving options include custodial accounts, U.S. savings bonds and municipal bonds.

Also, encourage your teens to work part time to save for college. Not only will this promote personal investment in their own education, it will also give them a greater sense of value for their college experience.

Smart parents should get a “to-do” list ready. Saving for retirement is always the top priority, followed by estimating education costs. Then with the help of advisers — and with your future college student at your side — research every tuition option available.

Imagine yourself on a plane when the oxygen masks drop and wanting so badly to help your child first. But the advice is there for a reason: Take care of yourself so you can take care of your kids.

Jean C. Setzfand is vice president of the Financial Security issues team in the Education and Outreach group at AARP. She leads AARP's educational and outreach efforts aimed at helping Americans achieve financial peace of mind in retirement. She can be reached at jsetzfand@aarp.org and you can follow her on Twitter @JSetz.