Do you have to choose between college savings and retirement?

Prioritizing financial goals is one of the hardest parts of your financial life to get right. Especially in the last decade or two, as college costs have gone up so significantly. In fact, the cost of college tuition has gone up 1,120% since 1978. Eesh! What this tuition increase has done is made our incomes feel inadequate. We feel as though it's impossible to save for our kid's education and retirement. It becomes a choose one scenario. And since, as you've heard me say here before, you can finance a college education but cannot finance retirement, retirement becomes the priority. Yet... it's not quite that simple.

I used to believe it was that simple, but I've changed my mind to some degree. It's still true you can't finance a retirement, but what has changed is that parents are finding themselves with much more in Parent PLUS loans than they ever thought they would. Why? Because 18-year-olds can easily cap out the amount of student loans they are eligible for. This leaves parents scrambling to either cash flow the difference or take out Parent PLUS loans. Here's where it gets interesting. The average age for an American mother has ranged between 25-27 over the last two decades, which puts parents in their mid to late-40s when their kids graduate college. Your 40s and 50s are your prime earning years, which means they are your prime years for putting away funds for retirement (though of course funds contributed in your 20s and 30s are more valuable since they have time to grow over time). If you are stuck with Parent PLUS loans in your 40s and 50s, and it takes you 10 years to pay off the loans, you'll be seriously hurting when your retirement rolls around. And we haven't even addressed the high-interest rates on Parents PLUS loans yet, which are typically double to triple the rate of student loans.

All this to say if you are in your 20s and 30s and are prioritizing retirement over saving for your kids' education you are technically doing the right thing, but make sure you've taken into consideration all the possible scenarios. In reality, prioritizing both is necessary to prevent any major bumps in the road. And yes, I'm aware how unfortunate this is. But it's better to struggle in the present when you have a 30-year buffer before retirement than to be 50 years old and facing 10 years of paying off a 6-figure loan with a 6% interest rate.