Skip to content
  • About
  • Contact
  • Contribute
  • Book
  • Careers
  • Podcast
  • Recommended
  • Speaking
  • All
  • Physician
  • Practice
  • Policy
  • Finance
  • Conditions
  • .edu
  • Patient
  • Meds
  • Tech
  • Social
  • Video
    • All
    • Physician
    • Practice
    • Policy
    • Finance
    • Conditions
    • .edu
    • Patient
    • Meds
    • Tech
    • Social
    • Video
    • About
    • Contact
    • Contribute
    • Book
    • Careers
    • Podcast
    • Recommended
    • Speaking

7 reasons why you should prioritize retirement savings over college savings

James M. Dahle, MD
Finance
December 4, 2018
8 Shares
Share
Tweet
Share

It is widely recommended in the financial world that you prioritize your retirement savings over college savings for your children. I agree with this advice. Yet, I run into people all the time who are not following it. Perhaps it is because college often arrives a decade or more earlier than retirement so it seems natural to save for college first and then turn your attention toward retirement. To make matters worse, I find some people prioritizing saving for their children’s college over paying off their own education! Now, if you’re milking along some 1.1% student loan while investing aggressively in a 529, fine, but for the most part, prioritize paying for your own education first, then your retirement, then your children’s education. In this post, I’ll give seven reasons why.

1. You can’t borrow for retirement

One of the best reasons to save for retirement first is that you (and thus your child) can borrow for an education, but you can’t borrow for retirement. That’s not entirely true; you can borrow against your portfolio, your life insurance cash value, and your home, but you can’t borrow without collateral (at least not very much, I suppose lots of retirees die with credit card debt) like you can with student loans.

2. There are four pillars of paying for college

Regular readers have heard me talk about the four pillars of paying for college. Despite reason # 1 above, none of those pillars involve debt (although I suppose some debt is okay for professional/graduate school so long as it brings a degree with high earning potential.) The pillars are:

  1. School selection: Pick a school you and your child can afford to pay for without debt.
  2. Student contribution: This includes merit scholarships, the child’s savings, summer work, and part-time work during school. The children of most high-income professionals won’t qualify for need-based aid.
  3. Parental savings: ESAs, 529s etc.
  4. Parental cash flow: A high-income professional can likely contribute something from current earnings toward college

Since there are three other pillars to rely on, even if pillar three is minimal, college can still happen. That’s less and less the case with retirement, as Social Security’s full retirement age is slowly climbing and pensions are going the way of the dodo bird.

3. You help others from a position of strength

As a general rule, you can only pull people up to where you are. It is difficult (not to mention unwise) to provide significant financial help to someone else when you are financially insecure yourself. Like in the airplane when the oxygen masks drop — put yours on first, then help your children.

4. You can use retirement money to pay for college

Here’s another novel thought- money is fungible. If heaven forbid, you save too much for retirement and don’t have enough to cover what you want to pay for college, you can take retirement money and use it for college. Some of it is probably in a taxable account, so no penalty to withdraw it (plus you may even get some tax deduction or credit for paying directly.) Roth IRA contributions can be taken out for any purpose at any time penalty-free and tax-free. IRA earnings can be taken out penalty-free to pay for education. You could borrow against a 401(k) if you wanted, although I don’t recommend it. You could even withdraw retirement account money and pay any taxes and penalties due.

5. Retirement tax benefits are way better

There are some tax benefits associated with saving for college, they’re pretty minor though. In many states, you don’t get a deduction/credit at all, just the tax-free growth and withdrawals. Retirement accounts, on the other hand, are often the best tax break available to doctors. If you need another reason to prioritize retirement over college savings, the tax breaks are a big one.

6. Retirement accounts can be stretched and get better asset protection

While 529 account beneficiaries can be changed, allowing the money to continue to grow in a tax-protected way for another decade or two, that pales in comparison to the benefits of a stretch IRA, or even better, a stretch Roth IRA. 529 accounts also have limited asset protection in the rare event you are sued for more than policy limits. It really varies quite a bit between states. Retirement accounts, on the other hand, receive excellent protection in nearly every state.

7. Much greater variability of price for college than retirement

The price of a college education is amazingly variable. It can range from a mid-four figure amount per year to a mid-five-figure amount per year, a tenfold difference for a similar product! Retirement costs do have some variability (notice how many retirees downsize or move South to a lower tax state), but not nearly as much. Unlike college, spending dramatically less on retirement often results in a “less attractive product” (i.e., lifestyle).

There you go. Seven reasons why you should prioritize retirement savings over college savings. As always, moderation in all things, but don’t make the mistake of pouring all your resources into your children and then expecting them to support you in your old change. They may not be able to, may resent it, or simply may not do it at all!

James M. Dahle is the author of The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing and blogs at the White Coat Investor. He is the creator of Fire Your Financial Advisor!, a high-quality 12 module course with a little over 7 hours of videos and screencasts, a pre-test, section quizzes with answer explanations, and a final exam. The goal is to take a high income professional from square one, teach them financial literacy and help them write their own financial plan.

Image credit: Shutterstock.com

Prev

How physicians can get started with passive income

December 4, 2018 Kevin 0
…
Next

What a physician would tell his younger self about the use of debt

December 5, 2018 Kevin 1
…

Tagged as: Practice Management

Post navigation

< Previous Post
How physicians can get started with passive income
Next Post >
What a physician would tell his younger self about the use of debt

More by James M. Dahle, MD

  • 8 ways to go broke as a doctor

    James M. Dahle, MD
  • How physicians can retire early: 7 steps to follow

    James M. Dahle, MD
  • A physician’s defense of active income

    James M. Dahle, MD

Related Posts

  • 5 reasons to get involved in organized medicine

    Frances Mei Hardin, MD
  • The fight to save Howard University College of Medicine

    Vicky Li and Naveen Balakrishnan
  • How the science of learning salvaged my college career

    Elijah Hamm
  • Why it is essential to prioritize universal coverage

    Payman Sattar, MD
  • Are there reasons to doubt remdesivir?

    Daniel Hopkins, MD
  • 3 reasons why smart doctors fail big exams

    Steve Blatt, MD

More in Finance

  • Doctors and disability insurance: Protecting your income

    Amarish Dave, DO
  • 1 in 5 doctors will become disabled. Are you prepared?

    Amarish Dave, DO
  • The pros and cons of whole life insurance for high-income earners

    Shane Tenny, CFP
  • Applying the differential diagnosis method to investing

    Amarish Dave, DO
  • Unlocking your full earning potential: a physician’s journey to a $70,000 salary boost

    Contract Diagnostics
  • For newer doctors, avoid lifestyle inflation

    Amarish Dave, DO
  • Most Popular

  • Past Week

    • Challenging the diagnosis: dehydration or bias?

      Sydney Lou Bonnick, MD | Physician
    • A teenager’s perspective: the pressing need for mental health days in schools

      Ruhi Saldanha | Conditions
    • Understanding reproductive rights: complex considerations

      Anonymous | Physician
    • COVID-19 unleashed an ongoing crisis of delirium in hospitals

      Christina Reppas-Rindlisbacher, MD, Nathan Stall, MD, and Paula Rochon, MD | Conditions
    • Air quality alert: Reducing our carbon footprint in health care

      Shreya Aggarwal, MD | Conditions
    • When physicians are disrespected [PODCAST]

      The Podcast by KevinMD | Podcast
  • Past 6 Months

    • Medical gaslighting: a growing challenge in today’s medical landscape

      Tami Burdick | Conditions
    • I want to be a doctor who can provide care for women: What states must I rule out for my medical education?

      Nandini Erodula | Education
    • Balancing opioid medication in chronic pain

      L. Joseph Parker, MD | Conditions
    • Unveiling excessive medical billing and greed

      Amol Saxena, DPM, MPH | Policy
    • The erosion of patient care

      Laura de la Torre, MD | Physician
    • I’m a doctor, and I almost died during childbirth

      Bayo Curry-Winchell, MD | Physician
  • Recent Posts

    • When physicians are disrespected [PODCAST]

      The Podcast by KevinMD | Podcast
    • Addressing dual diagnosis needs in addiction treatment

      Susan Hertz Berrick, EdD | Conditions
    • The essence of health narratives, including poetry

      Arthur Lazarus, MD, MBA | Physician
    • Discover the power of patience

      Diane W. Shannon, MD, MPH | Physician
    • Doctors rediscover joy in practicing medicine, on their own terms

      Kim Downey, PT | Physician
    • End-of-life ethics and antibiotic use [PODCAST]

      The Podcast by KevinMD | Podcast

Subscribe to KevinMD and never miss a story!

Get free updates delivered free to your inbox.


Find jobs at
Careers by KevinMD.com

Search thousands of physician, PA, NP, and CRNA jobs now.

Learn more

Leave a Comment

Founded in 2004 by Kevin Pho, MD, KevinMD.com is the web’s leading platform where physicians, advanced practitioners, nurses, medical students, and patients share their insight and tell their stories.

Social

  • Like on Facebook
  • Follow on Twitter
  • Connect on Linkedin
  • Subscribe on Youtube
  • Instagram

CME Spotlights

From MedPage Today

Latest News

  • Novavax's Updated COVID Shot Authorized by FDA
  • SBRT Noninferior to Conventional RT for Intermediate-Risk Prostate Cancer
  • Mixed Bag for Early Metformin in Gestational Diabetes
  • FDA Advisors to Consider DFMO Maintenance for High-Risk Neuroblastoma in Kids
  • Adding Tirzepatide to Basal Insulin Cuts HbA1c in Poorly Controlled T2D

Meeting Coverage

  • SBRT Noninferior to Conventional RT for Intermediate-Risk Prostate Cancer
  • Mixed Bag for Early Metformin in Gestational Diabetes
  • Adding Tirzepatide to Basal Insulin Cuts HbA1c in Poorly Controlled T2D
  • Low Relapse Rates With Twice-Yearly Schizophrenia Treatment
  • Menopause Can Negatively Affect Women's Careers
  • Most Popular

  • Past Week

    • Challenging the diagnosis: dehydration or bias?

      Sydney Lou Bonnick, MD | Physician
    • A teenager’s perspective: the pressing need for mental health days in schools

      Ruhi Saldanha | Conditions
    • Understanding reproductive rights: complex considerations

      Anonymous | Physician
    • COVID-19 unleashed an ongoing crisis of delirium in hospitals

      Christina Reppas-Rindlisbacher, MD, Nathan Stall, MD, and Paula Rochon, MD | Conditions
    • Air quality alert: Reducing our carbon footprint in health care

      Shreya Aggarwal, MD | Conditions
    • When physicians are disrespected [PODCAST]

      The Podcast by KevinMD | Podcast
  • Past 6 Months

    • Medical gaslighting: a growing challenge in today’s medical landscape

      Tami Burdick | Conditions
    • I want to be a doctor who can provide care for women: What states must I rule out for my medical education?

      Nandini Erodula | Education
    • Balancing opioid medication in chronic pain

      L. Joseph Parker, MD | Conditions
    • Unveiling excessive medical billing and greed

      Amol Saxena, DPM, MPH | Policy
    • The erosion of patient care

      Laura de la Torre, MD | Physician
    • I’m a doctor, and I almost died during childbirth

      Bayo Curry-Winchell, MD | Physician
  • Recent Posts

    • When physicians are disrespected [PODCAST]

      The Podcast by KevinMD | Podcast
    • Addressing dual diagnosis needs in addiction treatment

      Susan Hertz Berrick, EdD | Conditions
    • The essence of health narratives, including poetry

      Arthur Lazarus, MD, MBA | Physician
    • Discover the power of patience

      Diane W. Shannon, MD, MPH | Physician
    • Doctors rediscover joy in practicing medicine, on their own terms

      Kim Downey, PT | Physician
    • End-of-life ethics and antibiotic use [PODCAST]

      The Podcast by KevinMD | Podcast

MedPage Today Professional

An Everyday Health Property Medpage Today
  • Terms of Use | Disclaimer
  • Privacy Policy
  • DMCA Policy
All Content © KevinMD, LLC
Site by Outthink Group

Leave a Comment

Comments are moderated before they are published. Please read the comment policy.

Loading Comments...