Should You Invest In Your Kids or Your Retirement?

invest in kids
Image by Comfreak from Pixabay

There are a lot of reasons to invest, but two of the biggest and most important are for our retirement and for our children’s education.

Both require long term planning and should be started as soon as possible, but where is your money better suited?

More than likely your kids can’t invest for themselves, especially at the young age a 529b should be started, but no one is exactly helping you with your retirement fund either. Let’s take a look at each to help you decide if it’s best to invest in kids–or your retirement.

Reasons for Investing in Your Kids

Investing for your children’s college education can be extremely important to most of us. Of course there are several good reasons for this mentality. 

College is Expensive

A college education has long been the separator between being able to get a job and get better (and higher-paying) jobs. Decades ago, it was hard, but not impossible to pay your own way through school, but that is not necessarily the case today.

For the most part, college tuition has been rising faster than wages, making it harder and harder for anyone to pay their own way through college.

With the price of admission rising, it’s that much more important for us to start investing early. By investing early, you’ll have the best chance of being able of not taking huge financial hits once your kid goes off to college.

The idea is simple, the more you put away now, the more it’s worth five, ten or fifteen years down the line, lightening the burden you’ll pay when the time comes.

Tuitions might not continue to rise at such a rapid pace, but it’s unlikely they’ll decline anytime soon. Being prepared for the worst and hoping for the best is certainly a good mentality to have.

529b Can Be Transferred

Did you know that a 529b can be transferred to another beneficiary if your child doesn’t use it? You can’t transfer to just anybody, but most of your immediate and extended family are eligible to receive any additional funds.

What this means is that if you have any money left over or you are lucky enough for your child to receive any kind of scholarship money, the remaining balance doesn’t go to waste.

Your child might not be the direct beneficiary of the funds, but if you wait to transfer to a grandchild or two, then you’re indirectly helping your own child as they won’t have to sock away as much of their funds as an adult to pay for college. It’s all about the long term!

It Can Pay For Grad School Too

After your child graduates, don’t immediately drain that account. With at least another four years of growth, the 529b can help pay for graduate school too.

Although typically not as expensive as your undergraduate degree, a Masters or other degree is hardly cheap.

By investing more into the 529b, even if you don’t fully drain it for the undergraduate degree, it may still have a use.

Don’t Want them Graduating With Debt

We all want our kids to have the brightest future possible. Not included in that picture, is having the saddled with debt from the moment they enter the real world.

Today’s students are graduating with massive amounts of debt and it’s a detriment to everyone. It doesn’t allow them to fully live or get on solid financial ground until years later.

By investing in their 529b and at least minimizing the amount of debt you or they will have is always a smart investment

Reasons For Investing in Your Retirement

On the other side of investing in your child’s future is investing in your own future. For many of us, we dream about our retirement starting on our first day at our first job.

Like college, retirement or financial independence will require a massive amount of money set aside for you to live off of for decades. There are plenty of reasons to be investing in your retirement as well.

College Experience May Change

If there is anything we learned in 2020, is that doing basically everything virtually kinda works. Many of us were forced to work from home and if you were in school, learn from home.

There are many people out there that believe that college will be able to accept thousands of additional “virtual” students each year. With such a big expansion of students that require very little investment on their parts, we could see drops in tuition prices. This is by no means a certainty, but it can’t be ruled out as a possibility. 

There is no doubt that there will come a day where you are no longer in the workforce, so any funds not used toward tuition, should be used for your retirement. 

College Isn’t For Everyone

For as much as we all would like to think our children are college material, it’s not always the case.

Not everyone is best suited by going to college and there is nothing wrong with that. Forcing yourself into an institution that will charge tens of thousands for an education you don’t want or won’t get any good use from is not a good way to use your money.

However, no college doesn’t mean all is lost…

There Are College Alternatives

Years ago, if you didn’t go to college your only alternatives were a low-paying entry-level job or to get into a trade. These are still both very viable options and low-paying jobs can turn into rising through the ranks to obtain better jobs and pay.

Trades are still very much in demand and will remain so until robots completely take over the human race. 

In today’s world, there are still other possibilities. With online learning, it’s possible to take specialized classes, courses or even more intense learning like a “Bootcamp”.

Many of these courses or bootcamps are basically like college without all the fluff. If you want to be a software engineer, why pay for all the general education courses, science classes and other subjects that although good to know, have nothing to do with your desired profession?

Some courses require you to be in person, but many can be taken online and are a fraction of the cost of college. 

No One Will Give You a Loan For Retirement

Although not the ideal situation, loans are always a possibility if you have no other means to pay for college or college alternative. The reality of it all is that there is no such thing as a retirement loan.

Minus 401k matching for some of our employers, anything in our retirement funds comes directly from us and nowhere else. No loans, no scholarships, no alternatives.

Who do you think will support you if you don’t have a place to live or enough money to buy food, if anyone, it will be your kids! By investing in your retirement, you could potentially be helping your children, by not needing them to support you in your old age.

Conclusion

Clearly, we have good reason to invest in both a 529b and 401k or other retirement funds. The idea here shouldn’t be to invest in one or the other but to strike a balance between the two that fits your goals and lifestyle.

College tuition is not necessarily a foregone conclusion and retirement is, but that doesn’t mean you shouldn’t be ready for both.


About the Author

Jeff is a fan of all things finance. When he’s not out there changing the world with his blog, you can find him on a run, a Mets game, playing video games, or just playing around with his kids.

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