One problem that every parent faces is whether to invest for their retirement or pay for their children’s college.

On the one hand, the cost of college is reaching unprecedented levels. Outstanding student debt recently exceeded $1 trillion so helping out your children with college tuition helps prevent them from going into crippling debt.

On the other hand, your children have their entire lives to pay back student loans while you have a more limited timeline to invest for retirement.

Today we’ll review the advantages of each option and propose a third approach to retirement and college savings.

Advantages of Helping Pay for your Children’s College

There was once a time where a student could work his way through college. Today that is becoming less and less realistic for the 20+ million college students in the United States, even for students who work full-time while going to school.

Students who graduate with large amounts of debt typically end up being forced to hold off on life events like getting married, moving out of their parents’ house, or buying a home. It can lead to additional stress and poor credit scores.

The biggest advantage of helping pay for your children’s college education is that upon graduation they will have a low-level or non-existent student loan debt. This will give them more freedom and flexibility, not to mention stability, in their post-grad life. They will be more likely to take calculated risks such as starting a business, and will likely have a lower level of stress because they don’t have massive student loan debt in the back of their mind.

The advantages of helping pay for your children’s college education is extremely visible and will likely result in gratitude from your children – and who doesn’t need more of that?

Advantages of Investing for Retirement

The advantages of investing for retirement are not as visible in the short-term. Saving and investing for retirement does have an advantage over saving for a child’s college education, though: unlike college, retirement can’t be funded on loans.

Choosing to forgo retirement savings could result in not having enough for those long years of your life. Many people help their children with college with the belief that they will be able to “catch up” later on, but the problem with this logic is that a dollar invested today is worth more than a dollar invested 20 years from now. Compound interest makes money invested today more valuable, making it important – and easier – to save for retirement now instead of playing the catch-up game later on.

Is it Possible to both Pay for College and Invest for Retirement?

You don’t have to think of these two important options as an either-or, but before you start a college fund of any kind, you should make sure you are on track for eventual retirement.

Use a retirement calculator, learn retirement annuity basics, and find out how money manager fees differ. This will ensure that you are knowledgeable about the retirement process and prepared for what’s ahead. Only then should you consider saving for your children’s college educations.

If you do have additional income that can be diverted to save for your children’s college accounts, consider looking into a tax-advantaged 529 plan. Because these accounts are treated favorably from a tax perspective, you will be able to save more than if you simply put money into a savings or individual investment account. Plus, there are hundreds of unique ways your child can save money in college including:

• Community colleges
• Keeping a Steady job
• Applying to small, local scholarships
• FAFSA
• Purchasing Used Textbooks
• Strict Budgeting

Regardless of how much you decide to contribute towards your children’s college tuition, retirement planning is a necessity that can’t be overlooked.