Question: My wife and I have three daughters — ages 7, 6 and 1 — and my question is about competing financial goals. We are both fully funding our retirement plans at work; we have long-term care, disability and life insurance; and we pay for day care for the kids. But after all that, we can’t scrape together very much to put into the kids’ 529 plans. Should we back off our retirement plan contributions and increase our 529 investments a little?

Ric: It’s understandable if you’re feeling guilty and scared about the girls’ education costs. Many parents around the country feel the same way.

In a perfect world, you’d save for everything, of course. But if you can’t afford to do it all, should you save for your kids’ college or your own retirement? Or should you reduce your insurance coverage a bit in order to divert more into college savings? 

The answer is to keep doing what you’re doing, because you’re doing it all correctly — and here’s why I say that:

You must save for retirement before you retire. You can’t do so once you’re in retirement. But that’s not the case with college. The girls can get loans and pay them off while working.

The same is true of houses and cars: You can buy a house and live in it while you’re paying the mortgage, and you can make loan payments while driving the car. But retirement must be pre-funded.

So you are correct to emphasize your retirement. Think about these what-if scenarios:

  • What if everything doesn’t go according to plan and you aren’t able to work for 40 years?
  • What if you die sooner than you expect?
  • What if you become disabled?
  • What if any of those things interferes with your income production as a couple?

Thus, you must properly fund your insurance coverage — not only life, disability and long-term care but also health insurance, auto insurance, homeowners insurance and umbrella liability insurance. Insurance is your safety net, which helps protect you in case anything goes wrong with your plan.

Having said that, there is a way to solve your dilemma about college. Fund retirement only to the extent necessary. Occasionally we find that parents are overfunding their retirement, but they aren't aware of it because they’ve never constructed a financial plan.

So I would encourage you to let us develop a plan for you and verify — based on your goals, your future income need, your current expenses and your ability to save — just how much money you really need to save for retirement and how to invest that money. We might discover that you can reduce the amount you’re earmarking for retirement, freeing up some dollars that you can apply to college costs.