Advisers: Savers need to put retirement ahead of college

Saving for retirement should be a top financial priority for everyone, but many people opt to pay off debt or fund their children’s college educations instead.

That could be a costly mistake, according to Bridger Parsons, registered principal at Old Town Wealth Advisors in Fort Collins.

“The biggest problem with modern retirement is longevity. The average age of retirement is 62 years of age and based on current mortality tables, the average couple retiring today will live to be 92. You’re talking about a 30-year retirement,” Parsons said.

SPONSORED CONTENT

People Powered: Preparing Longmont Businesses for Economic Success

Longmont Chamber and FNBO present People Powered on April 24, 2024, aiming to inform business owners about workforce development, housing, and transportation issues.

People are living longer in retirement than they ever have in history, he added.

“Every saver’s number one goal is to make sure they save enough so that they can retire securely for a very long period of time,” Parsons said.

What people don’t realize is that they can borrow money to pay for their children’s educations but they can’t borrow money to fund their retirement, said Peter Contino, a certified financial planner at Stifel in Fort Collins.

“That doesn’t mean don’t save for college. It just means that if push comes to shove, choose saving for retirement over college,” he said.

Parsons agreed, saying that “you never want to sacrifice your own financial wellbeing in order to try and save for your kids’ college. Our kids will go to school and they will do it with our assistance, either full or partial, or they will do it with student loans. If they do it on student loans, it is the cheapest money they have ever borrowed in life with the biggest return on investment.”

He added that by not paying
yourself first you are actually doing a disservice to your children, who will have to support you in your old age if you haven’t saved enough yourself.

The best way to begin saving for retirement is to take advantage of a workplace retirement plan. Many companies offer matches up to a certain percentage of an employee’s salary.

“If you are not a business owner; you are an employee, the rule of thumb is definitely participate if your employer is offering a match in their 401(k). The reason is that it is free money,” Contino said. “They will match dollar for dollar up to a certain percentage of your salary. You should at least participate at that level. Sometimes employees don’t get that.”

Saving for retirement is key but Andi Bovarnick, a certified financial planner with AB Financial Strategies in Boulder, said that before people begin investing they should protect themselves first. That means having an “adequate emergency fund so that you don’t put yourself into debt if things arise that you don’t have the money for.”

Many times people will lose a job or have a medical emergency. In those cases, it helps to have money readily accessible. The other important item is insurance. Bovarnick stresses that having insurance to protect yourself and your property can also keep people from financial distress.

As far as saving for retirement or your child’s education, Bovarnick said that saving for college is tricky.

“You can get loans for college but not for retirement. It has to be about what people’s goals are and finding a balance between contributing something and not hurting themselves,” she said. “You are going to need a lot of money in retirement and people are not saving enough at all.”

People don’t save early enough and they don’t save enough, she added.

“It depends on how you want to live your lifestyle. People can live on low amounts and have managed their life in a way that that works, and others couldn’t possibly come close to that so they need to save more,” Bovarnick said.

“The key to any success with retirement and future goals is to know where your money is going. You can’t ignore it because money just flies out. You need to know where it is going, get a handle on it and know how much you can save,” she added.

Saving can be painful. It is not easy or fun and “some days we don’t want to be that honest with ourselves; we don’t want to be that accountable,” Bovarnick said.

But learning to manage money doesn’t come easier once you retire. If you have never put yourself on a budget, it will be nearly impossible to do so once you have limited funds in retirement, she said.