Save for Retirement or College?

Planning for Your Retirement Should Be Your First Goal

How important is it to save for college? While most parents would like to see their offspring get a good education, it is easier than ever for a child to get financing for a college education.

On the other hand, there are really no true methods of financing your retirement. You can get a reverse mortgage, but this will only supply limited funds.

The length and comfort of your retirement will depend on the choices you make when you're young. One of those choices will be how well you will fund your retirement.

If you don't save enough, you will pay the consequences when you are much older.

Your major sources of income in retirement are going to be: Social Security benefits; pension proceeds, if any; the proceeds of your savings and investing plans: and, if necessary, earnings from continuing work.

Social Security will probably not die, at least in our lifetimes. It is a sick system, which if allowed to continue on its present course, will put a huge drain on the working population in order to support the plan’s beneficiaries.

I believe the government will most likely slow the growth of benefits while taxing them more heavily. It may allow some privatization of the plan, although that will do those of us approaching retirement in the next few years little good.

All US residents covered by Social Security get a yearly statement predicting what their benefits will be if you continue to earn at your present rate. So you should know more or less what you will receive. How much you will be allowed to keep is another story. Ask your accountant what he projects your after tax income might be.

Pensions are another hot topic in the news as more corporations find they can’t meet their obligations to their current and future retirees.

There is supposed to be federal guarantees for pension funds, but many experts assert that there is not enough guarantee money available.

This will likely mean that those who work for companies who walk away from their pension funds will receive a lot smaller pension then promised. Of course, pensions, like income are subject to taxation.

This leaves you with the money you built up in 401K’s, IRA’s and other investments to get you through your retirement. 401K plans are your employer's way of shifting the burden of your retirement from their backs to yours.

The government also gives you a choice of tax sheltered plans - some of which, like the Roth IRA - will provide you with tax free income. But, it takes a lot of money to live comfortably through retirement. Meet with a financial planner or use some of the popular financial software programs to determine how much you need to save.

You will probably be shocked to see the answer and think you can never save enough. Don't despair and save as much as you can afford.

If you are close to retirement, you know how much you have saved and you can work with an accountant or financial planner to determine how best to utilize these funds in retirement. You want to maximize your income while preserving the principal.

I hope I’m wrong, but you will probably find that in spite of all your efforts, you still don’t have enough to continue your current lifestyle. (Read Retirement Planning to learn about some lifestyle changes you can consider.)

If you haven’t saved enough, there will be no choice but to continue working. This isn't necessarily bad. Read Working in Retirement to find out why.

This brings us back to the beginning of this article. Should you save for your children’s education or concentrate on your retirement. In an ideal world, you should save for both. But given the pressures on most of our paychecks, this might simply not be possible.

In that case, I would vote for the latter. If your child really wants an education, he will be able to get it. If you are successful with your investments, you can always repay his student loans later.

But look after your retirement first.

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