If you just landed a raise or received an inheritance, saving that extra income is a great idea.
But do you put the money toward paying for your child’s education or paying for your retirement?
Here are few considerations from each perspective to help you decide.
Why to Prioritize Retirement Savings
During your golden years, you don’t want to borrow money to pay for your daily expenses. If you don’t have a retirement nest egg, you might have to spend your twilight years accruing debt.
Many employers offer a valuable perk to help build your retirement savings: matching contributions when you invest in a 401(k) or 403(b) retirement plan. You can take full advantage of this incentive by having some of your pre-tax earnings automatically withdrawn from your paycheck and deposited into a 401(k) or 403(b) retirement plan.
Company matches for retirement plans are relatively common – but most companies don’t provide the same assistance for college savings.
Why to Prioritize Educational Savings
Paying for your child’s degree represents a long-term investment in their financial future. Because your kid has a college degree, there’s a good chance that you’re sending them out into the world on more secure footing financially.
Remember what it’s like to be just out of college and barely earning enough to pay for your rent and a nightly dinner of ramen noodles? Once the bills have been taken care of, paychecks for entry-level jobs — even those for college graduates — often have very little left over for discretionary spending.
Saddling your child with a hefty debt burden at age 22 or so could set them up for a decade-long struggle to repay it. If your graduate struggles to repay those education loans, it’s possible that they could feel pressured to rack up other types of debt, too.
The Bottom Line
It’s likely that saving for both these goals are priorities for you, and hopefully you can make headway on both simultaneously. If you have to decide where to funnel some extra savings, hopefully these hints can help you determine which option is best for you. Regardless of which one you choose, saving for the future is always a smart decision.
How are you prioritizing your savings dollars: college or retirement?