Which Comes First: Saving for Retirement? Or Your Children’s Education?

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When money is tight, you have to make choices. Which is why if you’re putting money away towards your children’s further education whilst trying to save for your retirement, you may well wonder – what should be the priority?

Assuming that you may not be in the position to fund both goals, financial experts generally will always tell you that retirement should be your first savings priority. Why you ask? The arguments below should convince you.

You can borrow for college. While you can’t borrow for retirement, your children have the ability to apply for scholarships, grants, work study programs and student loans to aid in the cost of education.

Your children can also get a quality education – by attending college for three years and then transferring to a university to finish their degree. You can retire on the cheap too, but you don’t want to do it too cheaply.

Spending your resources on retirement may make more financial sense from a numbers standpoint – the interest rates for student loans are often less than the returns you can make by putting money into investments for retirement. But everyone’s financial situation is different, and you need to proceed carefully. Borrowing for student loans can be expensive, you or they are going to have to pay it back – and that money you’re paying back could have been used towards your retirement. So borrow carefully.

By prioritising your children’s further education over retirement, you could hurt everyone in the long run. If you put all of your financial eggs in the education basket, and never get your retirement nest egg in order, your children may get their degree, and they might get a high-paying job – exactly the outcome you hoped for. But imagine that as you approach retirement, something goes wrong. Maybe you get sick, and you have to retire sooner than you hoped. Imagine your financial problems festering. Suddenly, you need a financial lifeline, and the only people you can turn to are … your children.

By having ignored your retirement needs, putting money towards their further education at the expense of your retirement, you could bring them down now. And even if you believe that you wouldn’t turn to them, you’re their parent, they may feel that they have no choice but to support you – possibly at a time when their own finances were just starting to take off.

In the long run, you’re much better off allocating those funds to retirement so your children won’t have to.

To ensure that you plan for your own needs, and those of your children, speak to your AAM Financial Planner today.

Ian Black
Head of Wealth Solutions
AAM Advisory Pte Ltd

This article is an op-ed piece by Ian Black
Facts and data sourced from https://www.ebri.org

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