Last Updated: July 6, 2009
When it comes to saving for college and saving for retirement, many young couples with children sometimes opt to save for the former and not the latter. But that's a big mistake, according to FPA member, Susan Moore, CFP®, of Moore Financial Advisors, Ltd.
You wouldn't be alone if you had two major long-term goals in your life: giving your kids a good education and retiring comfortably. And, you wouldn't be alone if you made the mistake of focusing on achieving one goal without examining whether you were leaving a gap in funding of the other, according to Moore. But, the possibility of missing nearly 20 years of retirement savings could result in your being significantly behind the eight-ball when it comes to life after work.
Yes, if you fund your children's education to the exclusion of your retirement, it's likely that you will underfund your retirement so significantly that you will have to "play catch up" later on. "By funneling the majority of your savings into 529 plans, you have missed out on some important opportunities for saving for retirement," Moore wrote in a recent release.
Over time, Moore noted that money in a retirement plan such as a 401(k) or 403(b) accrues without any taxes, allowing this tax deferred pot of cash to grow faster than a taxable account. "If you are among those parents who are funding a 529 plan but not your 401(k), it might be time to shift your priorities," said Moore. "You need to look at your goals as part of a total picture, instead of taking them sequentially. And, you need to recognize, as the financial planning rule of thumb says, that while there are safety nets in the form of financial aid for college, there are no loans or financial aid for retirement."
Find a financial planner.