How Families Can Pay For College And Save For Retirement

With $28,950 owed per U.S. borrower on average, many parents want to help their children avoid the burden of student loans. But doing so might cost parents their own financial futures.

When I coach people who are parents with their finances, we often run into the friction of saving for retirement versus paying for their children’s college. It’s possible to do both, but not without strain and stress for most American families. The median household net worth sits at only $121,760, according to the Federal Reserve.

In full disclosure, I am not a licensed financial advisor. The information here is based on my opinions, my personal experience, what’s been successful in my coaching experiences, and what considerations people overlooked in their financial planning. I share these tips with a personal perspective, as I was the eighth of nine children of my father. He prioritized my college education over his retirement, resulting in financial challenges later in life.

Calculate How Much Your Retirement Is Worth

According to the Federal Reserve, 1 in 4 non-retirees reported having no retirement savings and fewer than 4 in 10 felt they were on track with their retirement savings. So, how do you know if you’re on track?

Before you decide to prioritize your children’s college fund, calculate how much you would need invested in retirement. The number will never be exact, but you can use a retirement calculator assuming you know when you’d like to retire, your household income, your total retirement savings so far and your expected rates of return.


Most people get stuck at knowing what rate of return to use, so I use an even simpler way to estimate with the 25X rule. It helps you estimate what you’ll need in retirement by adding up five basic monthly living expenses as of today:

  • Housing (your mortgage or rent);
  • Utilities;
  • Food;
  • Transportation and;
  • Health

Multiply that number by 12 to get your annual expenses. Then you multiply that by 25 to get your estimated retirement number.

For example, if your total monthly expenses equal $4,000, your annual expenses are $48,000. Your retirement estimate would be $1.2 million. The retirement amount can be withdrawn from at a 4% rate annually without running out of money. This is based on the 4% rule, a common guideline used for retirement planning.

The point of the exercise is to not be exact — it’s to give you an objective perspective on how much more a parent would need to save for retirement versus paying for their kids’ college. If the resulting number gave you sticker shock, that’s normal. Give yourself a breath, but don’t let it deter you from making progress.

Start Defining Your Retirement In Dollars, Not Percentages

When I coach people and ask how much they’re saving, they tell me a percentage of their paycheck, likely tied to their matching contribution for their employer plans like a 401(k). Most people have no idea how much they are contributing regularly in dollars, but we can likely agree that saving up to just the company match is not going to close that large gap by itself.

Shift from thinking of retirement in percentages and start framing your plan in dollars. Many financial experts will give you a more complicated calculation to account for inflation, interest rates and other things outside of your control. This more complicated calculation stalls most people from taking action.

Start off with the straight-forward calculation of how much more you need by taking the 25X number and subtracting how much you have saved so far. For example, if you calculated $1,200,000 and you have $200,000 saved so far, the gap is $1,000,000.

Research As A Family On How To Keep College Costs Down

When I went to college, I got into my top choice school. But even with financial aid, it was a big financial burden. So, I opted to go to a “safety” school that would not require me to take out loans for undergraduate schooling. I admit that I first resented my parents for not allowing me to attend a more prestigious school.

In hindsight, I’m grateful they made that hard choice for me. I was able to even earn two bachelor’s degrees for the price of one by taking advanced placement classes in high school, community college classes in the summers and overloading semesters.

As you plan for college, ask yourself as a family:

  • Can you get the same education at a less expensive institution?
  • Is college the only way to get to the career you want?
  • Can you work while in college to offset the cost?
  • Do you have to go to college right away?
  • Could you spread out college classes over a longer period of time?

I eventually went to graduate school and needed $72,000 in student loans to finance it. But by then, I had more resources than my parents and I learned how to pay off the debt quickly. I also had more flexibility to change my money habits and my income than my parents did. It was less challenging for me to handle student loans than for them to try to increase their income and catch up with their retirement investing at a late age.

Commit To Budgeting As A Family

My parents hid our family’s finances from me, partially out of embarrassment and partly to protect me. But not talking openly about it, and not including your kids in your decision-making can have unintended side effects. As your children get into high school, start having conversations early on about these topics:

  • What are you able to provide in financial support?
  • If you help pay for college, what is your expectation of them in return?
  • Do you expect your children to chip in financially if you are no longer able to work?

As a daughter, I can say firsthand that it was much more stressful to deal with the consequences of my parents’ lack of retirement savings than pay off my student loans. They did not have enough money saved for healthcare and housing and were eventually forced out of my childhood home.

You won’t get to the full amount of money you need quickly, but you can start saving, even a little bit more now. Build a better budget and make the whole family part of the decision-making process. Help them understand that small shifts in spending now can lead to more stability in the future.

I have a niece and nephew and instead of helping them save for college, my husband and I are setting aside money for them to invest, and plan to teach them when they’re older. We’ve also made a conscious choice that even though our generation went to college, we will not pressure my niece and nephew to do the same if it’s not right for them. I’m excited to show them ways to make money that don’t require a college degree, like how I grew a business as a self-taught financial educator.

It’s okay for kids to know their parents are learning how to budget and save for retirement, and encourage them to learn alongside you. Trust that your family will have the ability to make great financial choices in the future, not just by paying for college, but in the habits you’ll instill through showing by example.

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