Some people are fortunate enough to retire comfortably and pay their children’s way through college. Most are not, and that means that some hard decisions need to be made.

Mythbusting and Making a Solid Plan

This article lays out several issues that are important to consider when planning your retirement and your college contributions. We will discuss why retirement must remain a top priority and how you can plan for both. Along the way, we’ll bust some myths that trip up many well-meaning parents, causing them to sabotage their own futures in an effort to give their children a good start.

Why Your Retirement Fund Can’t Wait

You can’t take a loan out to fund your retirement like you can for college. This is a very important distinction when thinking about the economic implications of paying for college versus saving for retirement. A student loan spreads the cost of the education over a period in which benefits are received (when one is working). This makes sense from an economic perspective, especially given the noted financial benefits (for example, higher salaries) associated with attending college. In other words, you may need to look at it this way: You can either put a burden on your kids when they are young, strong, educated, and unencumbered by family (when they first graduate) or you can put the burden on them when they are older and have more competing financial priorities (when you are elderly and financially unprepared for retirement and need their help).

Many parents simply haven’t thought through this part. If you underprepare for your own retirement when saving for your children’s college, the people who are most likely to be burdened by your financial needs are … your children.

If someone gets to retirement age and isn’t prepared financially, there’s not much that can be done other than working longer or living off less during retirement. Therefore, if the option is available, it likely makes more sense for the student to take out the loans and the parent to reimburse the student for part of the loans, if they desire.

But I’ll Be Short-Changing My Kids!

“A good parent pays for college. I don’t want them to start life weighed down by debt.” These, and many others, are the stories we tell ourselves as parents. Each makes a different argument, but they all go to the root of who we are and how we see ourselves. These stories tap into one’s sense of responsibility, sacrifice, and ability to provide. Numbers are one thing, but these stories run deep, and they are not swayed by charts and graphs or talk of comfort in retirement.

So long as you believe that you “should” pay for college, you also believe that not doing so makes you a bad parent, a failure, a poor provider, irresponsible, or any number of other things no parent wants feel like. Myths like this are emotional traps that lead to poor financial decisions. In fact, you’ll see as we look at the evidence, it turns out sometimes not giving your kids a full ride can be a benefit to them, not a burden.

How Much Retirement Money Will I Be Sacrificing If I Spend It on College?

The impact of paying for college versus saving for retirement is not dollar-for-dollar because the monies not used to pay for college today would grow to some greater amount by retirement. In other words, the interest that can be earned on funds saved for retirement is often greater than the interest that would be paid on student loans.

For example, if you can earn a 6% real return and could invest the money for 20 years (for example, you are currently 45 years old and plan on retiring at age 65). The value of the money that would have been used for college would more than triple by the time you reach retirement.

We demonstrate this effect in the table below, which shows how much you would have per $10,000 under several time periods and return scenarios.

Real Return
Years Invested
5 $11,000 $12,200 $13,300 $14,700
10 $12,200 $14,800 $17,900 $21,600
15 $13,500 $18,000 $42,000 $31,700
20 $14,900 $21,900 $32,100 $46,600
25 $16,400 $26,700 $42,900 $68,500
30 $18,100 $32,400 $57,400 $100,600
The Future Value of $10,000 If Invested Today Under Various Scenarios

A Three-Legged Stool

So, how can you prepare to send your kids out into the world with the skills they need and still protect your own retirement funds? We recommend a three-legged stool approach. This funding strategy can make paying for college seem more doable by breaking college funding into three pieces, each with its own time horizon: personal savings, financial aid and loans, and income.

The first, personal savings, is a multiyear savings endeavor in the years leading up to college.

Financial aid, such as grants, and student loans are the second component; in the case of federally subsidized student loans, interest doesn’t begin racking up until after the student has finished college.

The third and final funding mechanism is parents’ and students’ own contributions from income in the years in which the child is in school (for example, work study). Even as you can and should work to enlarge the college savings fund, this three-part approach demonstrates that you have additional levers available if your own savings fall short.

What’s the ROI?

Whenever there’s a funding shortfall, it’s also worthwhile to look at the other side of the ledger. Does the family need to spend as much on college as they’re talking about, or can they find ways to economize? A 2013 study2 conducted by the Pew Research Center found that adults who graduated from private universities reported no greater life satisfaction than adults who hailed from less expensive public universities.

Another study, 3 conducted by researchers at Purdue University and Gallup, found that the type of institution a student attended—public or private, elite or less selective—was a less important predictor of future workplace engagement and well-being than that student’s experiences while in school. For example, students who felt their professors truly cared about them as people or who took advantage of internships and extracurricular activities were more likely to report future workplace success and well-being than those who did not. This suggests that parents should invest as much energy in motivating their students to find positive experiences in college as they do in paying for college itself.

Before college, families should also have a candid discussion about the child’s future career path and the potential income associated with that career. Of course, college is a time for learning and building knowledge across disciplines, and few high school students have a well-mapped-out career path in mind. However, make sure there’s not a major mismatch between the outlay for college and the eventual earnings from the graduate’s career. That’s particularly important if the child will be shouldering loans to contribute to college costs.

A popular strategy to help families economize is for the student to take the basic courses at a low-cost community college while living at home and then eventually transferring to a four-year university once deciding on a specific course of study. As a parent, try to avoid overly romanticizing your own college experiences; just because you might have spent four years away at a four-year university far away from home does not mean your children must follow the same path to find success in their own lives.

Bottom Line

Many people balk at the idea of putting their retirement needs before their children’s college. This often comes down to a belief that doing so will somehow burden or short-change their kids, making the parents feel irresponsible or selfish. When you consider the facts, a three-legged stool approach makes sense for many people. By combining savings, loans, and labor income, you can accomplish the goal of paying for school without sacrificing your own future and security.

In truth, many of the beliefs we have about what makes for a successful college experience are simply myths. Loans are not always burdensome. Working during school can be beneficial, and an Ivy League education is not the only way to greatness.

Still wondering how to bring it up to your kids? Try saying, “Junior, you can either take out some college loans and pay them back when you’re young and healthy, or I can move in with you when I’m 65. Your choice.” Perhaps that will soften them to the idea.