Millennial parents, are you saving for your kids’ college over your own retirement? Admittedly, when it comes to amassing a nest egg, Millennials​ face a tough challenge. According to a 2016 Wells Fargo study, 64% of working Millennials say they don’t believe they’ll ever save $1 million in assets over their lifetime. Approximately 25 million young adults have yet to start saving for a retirement account, says a survey from robo-advisor​ Personal Capital.

The reasons for the delay are varied. A combination of low wages and high debt levels, for example, may be factors for some Millennials. Thinking that there’s plenty of time left to save is another. A new study from TD Ameritrade hints at a third reason why some Millennials may be getting it wrong where their retirement is concerned.

Don’t Put Retirement Behind Saving for Your Kids’ College

The TD Ameritrade survey was designed to gauge Millennial parents’ take on how important retirement is compared with helping their children prepare financially for college. While the children of Millennials likely still have years to go before they’re college bound, their parents are wasting no time in getting prepared. According to the survey, 90% of Millennials polled said they plan to pay at least some of their child’s college fees. (For more, see 5 Ways to Fund a College Education.)   

That’s not surprising, considering that one-third of young parents included in the survey said they expect to still be paying down their own student loan debt by the time their kids are old enough for college. As of 2017 Americans collectively owed $1.4 trillion in student loans, a number that continues to increase year over year. The typical class-of-2016 grad left school with $37,172 in education loans. “Nobody feels the pressure to pay for their kids’ education more than Millennial parents. Burdened with student debt, Millennials know all too well the impact escalating college costs can have and are doing everything in their power to soften the blow for their own children,” says Dara Luber, retirement and long-term planning expert with TD Ameritrade.

According to the survey, 19% of Millennial parents ranked their child’s education as their top financial priority. That same number chose building an emergency fund as their most important financial task. Saving for retirement came in third, with just 15% of Millennial parents choosing this as their number one purpose for saving. On average, those who are saving for their child’s college costs already are socking away $310 per month.   

While it seems logical that debt-averse Millennials would be interested in helping their children avoid the student loan trap, it raises the question of what they may be costing themselves in terms of their retirement. The survey found that among Millennials who are saving for retirement, 40% have withdrawn money from their retirement accounts for things such as emergency expenses, household bills, medical bills and vacations. (For more, see How to Use Your Roth IRA as an Emergency Fund.)    

That’s troubling, considering how underprepared many Millennials seem to be for retirement. A 2016 study from NerdWallet suggests that if the market were to take a downturn, Millennials would need to save 22% of their income to have enough set aside once they’re ready to retire. If a set of Millennial parents were to put the $310 they’re saving monthly for their child’s college costs into a Roth IRA from age 25 to 65 and earn a 6% annual return, they’d have over $610,000 for their later years.  

Balancing College Savings with Retirement Planning

Finding some equilibrium between planning for college and saving for retirement is essential for Millennial parents, particularly if they’re concerned about falling short. There are certain things young parents should consider to keep their financial goals in sight. 

  • Don’t miss your 401(k) match. If you’re eligible to contribute to a qualified retirement plan through your workplace, you shouldn’t pass up the opportunity. While you don’t necessarily have to commit to saving the 22% of your income that NerdWallet suggests, you should at the very least aim to contribute enough to get the company match, if there is one.
  • Prioritize your own student loan repayment over future college savings. When you’ve got student loan debt of your own, getting rid of it is important for freeing up additional money that you can then use to save for your child’s education. If your loans are carrying high interest rates, consider refinancing or consolidating, which could help you save money and pay them off faster.
  • Aim for consistency versus a higher savings rate if you can’t do both. It’s tempting to max out your retirement plan and put money into a 529 account at the same time, but if your income won’t allow you to do that, you need to figure out the optimum savings level for you. Focusing on putting smaller amounts regularly into each account rather than throwing everything extra you have into just one can keep things on an even keel.

    Luber warns Millennials against neglecting their retirement savings. “Clearly, parents want to pave an easier path for their kids, but it shouldn’t come at the expense of their retirement, for which there are no loans, grants or scholarships,” Luber says.

    The Bottom Line

    Millennial parents face unique financial challenges with which previous generations may be unfamiliar. The struggle to secure their own future while helping their children to steer clear of education debt is real. Finding ways to accommodate these two very different goals may be difficult. Just be sure that concern for children doesn't cloud the need to save for retirement. Children have time to earn their own money, but after retirement Millennials (probably even more than previous generations of retirees) will be dependent on what they've been able to save. For more, see Best Savings Priority: Retirement vs. College Fund.