Retirement vs. kids' college — helping clients with tough savings choices

Some parents find themselves in a financial gray zone — making too much money to qualify their children for financial help with colleges, but not enough to pay for it themselves without serious repercussions for their own retirement savings. 

The problem is becoming more dire as parents watch tuition costs rise quickly. Average tuition spiked 312.4% from 1963 to 2025 even after adjusting for inflation, and since 2010 tuition is still outpacing inflation — growing 0.92% after taking inflation into account, according to the Education Data Initiative, a research organization.

Tuition and fees for 2025 to 2026 grew 3.3% year over year for in-state students and 3.7% for out-of-state students at ranked public schools, according to U.S. News and World Report. 

"It's a dilemma I see all the time," said Mitchell Kraus, who co-founded Santa Monica, California-based registered investment advisor Capital Intelligence Associates with his father. "A lot of Americans have enough money to do anything they want but not everything they want, and there have to be some tough choices."

Individual situations are key when parents find themselves making one of those tough choices, between saving for their own retirements or their children's college educations.

"It's really an analysis of the details, the facts and circumstances of each case," said John Pantekidis, general counsel and a managing partner at TwinFocus, a Boston-based registered investment advisor. "To me, it's more important that mom and dad's retirement is fully funded, especially if they're older, especially if they're not as healthy, where they can't work as much — whereas a young person, if they have to get in debt to go to college, they're young, and they can pay it off."

If clients ultimately run out of retirement funds, they could try to ask their children for help, but that isn't a guarantee.

"How about if the kids now don't want to help mom and dad?" Pantekidis asked. "Now mom and dad are in a pickle."

He has worked with clients who did legacy planning with other firms and have now found they gave too much to their children's trusts. Now they're running out of money to maintain their lifestyles and are asking their children for money — in one situation, "the kids are playing tough," he added.

Kraus said he urges clients to start conversations about saving for college well in advance, when their kids are young.

READ MORE: Navigating the new student loan rules on repayment plans

Reevaluating college

College shouldn't be a default anymore, said Travis Poodiack, co-founder of Keene, New Hampshire-based registered investment advisor Birch Financial Group.

"We always tell clients and the children to view higher education as an investment," he said. "This is what this investment is going to cost, so ultimately you want to view it in that lens, so then say, 'Well, what will this investment allow me to do once I have it, and will it be a good investment?'"

If children don't know their goals but go to college anyway, they could end up saddled with debt and hoping family members will help with supporting them, he added.

Poodiack said he also works with clients to consider having the children take out private loans for a quarter or a different portion of the cost of college so the children can start to build credit histories and have "skin in the game."

Kraus agreed that prospective college students should think twice.

"In general, all of us are on autopilot way more than we should be, and we should be questioning decisions, especially a decision that is, at minimum, three or four years of one life and … easily tens of thousands if not hundreds of thousands of dollars," Kraus said. "To do it because that's what everybody else does is the same lunacy of any other thing you're doing because everybody else is doing it."

Although college is a default for most families, it's still worth questioning, especially for families with younger children.

"We don't know what the future's going to be, and with many careers at stake … AI might be taking over many industries, and [there] will be a lot of job shifts and changes, protecting yourself is probably even more important," he said.

READ MORE: How planners say parents should prepare kids for the cost of college

Using 529 education savings plans

A common method advisors recommend to clients saving for college or other education expenses is a 529 education savings plan. They still have some limitations, but their allowable uses have been expanded over the years.

"We encourage — and the earlier the better — investments in 529 plans, for example, especially for families where taxes are a problem because there's tax benefits of investing in 529 plans," Pantekidis said, "to make college funding easier in the later years."