Save for Retirement or Pay Tuition? Most Parents Are Making the Wrong Choice

With all the hand wringing over the high cost of college and amid an increasingly loud debate as to whether the expense is worth it, parents by a wide margin see saving for tuition as equally or more important than saving for retirement.

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By a wide margin, parents see saving for their kids’ college tuition as equally or more important than saving for their own retirement, according to a new study. And this is especially true of low-income households.

The findings are notable for a couple reasons: There is an increasingly loud debate about whether the high cost of a college education is worth it, and most financial planners argue that retirement savings should be your priority. Yet just one in three parents say that saving for retirement is more important than saving for college, according to the study released today by Allianz Life Insurance.

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Why is saving for retirement more important? Young people can usually get education loans on favorable terms, or they can delay going to college for a few years or choose a lower-cost institution. They have many years to figure it all out. But parents approaching retirement age do not have the luxury of time. Saving money and leaving it to grow is a long process; it needs to start early and should never be compromised.

Low-income households seem most resolute when it comes to favoring college savings over retirement savings. In the survey, 37% of low-income households (under $25,000 of annual income) said college was the priority while 26% said retirement was the priority. (Thirty-seven percent in this bracket said the two were equally important.) In all other income brackets, families placed a slightly higher priority on retirement. This suggests that low-income families especially still see higher education as their kids’ best ticket to financial success.

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There is a body of research that concludes that the lifetime earnings of a college graduate will top those of people who didn’t go to college by $1 million. But that’s been called into question in recent years. The student loan explosion (we are approaching $1 trillion outstanding) is crippling graduates with so much debt ($24,000 per graduate, on average) in a weak job market (9.1% unemployment) that some argue the ever rising cost of higher education simply isn’t worth it.

But whether you believe college is worth the expense or not, saving for it probably should be secondary to saving for your own retirement. It may come down to this: Would you rather have your kids end up paying their student loans … or your medical bills?