"Some folks are just too keen to invest for their kids. They open up a 529. They start stuffing money in before they've optimized their own investing. Millennial parenting is very different than the way our parents parented. We put more pressure on ourselves to provide for our kids in a way that might not be best for our overall family financial situation."
"A parent who diverts $300 a month into a 529 instead of a 401(k) for 20 years walks away with a great college fund but a potential retirement gap, especially if an employer match is lost. Remember, your kid has access to student loans for college. Your retirement has to be funded out of pocket."
"Over 30 years at a 7% return, Path A produces a college fund near $490,000 and a retirement shortfall in the same neighborhood, because the forfeited match alone (roughly $5,500 a year of free money) compounds into more than $500,000 by age 65."
Parents often prioritize saving for their children's college education through 529 plans before fully optimizing their own retirement savings, a practice that can create significant financial risks. Forgoing employer 401(k) matches to fund 529 plans means losing free money that compounds substantially over decades. A concrete example shows that a parent allocating $400 monthly to a 529 instead of capturing a 5% employer match loses over $500,000 in retirement savings by age 65. With the U.S. personal savings rate at only 4% and consumer sentiment declining, families have less financial flexibility. The priority should be securing employer matches, building emergency reserves, and maxing tax-advantaged retirement accounts before aggressively funding college savings, since children can access student loans but retirement must be self-funded.
#retirement-planning #college-savings #personal-finance-priorities #employer-401k-match #financial-decision-making
Read at 24/7 Wall St.
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