College Savings and Retirement: Getting the Balance Right

529 college savings plans are among the most consumer-friendly savings vehicles ever created. But one real risk is that parents will over-fund them. By placing too much money into a 529 plan, parents can inadvertently underfund their own retirement savings.

The core principle: you can borrow for college, but you cannot borrow for retirement. Your children can repay student loans throughout their careers. You must accumulate retirement savings before you stop working – there is no financing option once you are in retirement. Consider limiting 529 contributions to 50% to 60% of estimated future college costs, preserving flexibility for retirement and other needs.

There is also a long-term benefit to education worth noting: college graduates earn a median $900,000 more over their careers than non-graduates, according to the Social Security Administration. Since Social Security benefits are based on your 35 highest-earning years, higher lifetime earnings translate directly to higher retirement benefits. Education and retirement are connected.