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By Jason Stipp | 10-26-2010 04:48 PM

Retirement vs. College Savings: Which Comes First?

Investors should prioritize retirement, but there's room for flexibility, says Morningstar's Christine Benz.

Jason Stipp: I'm Jason Stipp for Morningstar. Saving for your child's education. Saving for your own retirement. Two very important financial goals that a lot of families are juggling right now. So, which one should you prioritize?

Here with me to offer some insights is Morningstar's Christine Benz, director of personal finance.

Thanks for joining me, Christine.

Christine Benz: Hi Jason, good to be here.

Stipp: So this is something that a lot of families are struggling with. They do have these two very important financial goals. If you had to pick one, if you had to prioritize one, if money is tight, which one should it be?

Benz: You want a short answer?

Stipp: Give me the short answer first, then we'll dig in.

Benz: The short answer is it has to be retirement, Jason, and the reason is that your child getting ready for college has a lot more variability. There are a lot more paths he or she could take. So they could get financial aid. They could get loans. They could attend to community college, before switching to a four-year college.

So, there are lot of different swing factors there for college kids that simply aren't there for people getting ready to retire.

Stipp: Just a lot easier for them to be more flexible in financing that particular expense at that time.

Benz: Right. No one is going to give you a loan to pay for retirement.

Stipp: That's true. So, Christine, if it looks like I do have enough money to fund both, how do I know when I put enough in that retirement part, so how do I know when I'm fully funded retirement and I can start to devote some investment dollars to college education?

Benz: Well, I would sample a range of opinions, Jason. So, if someone is working with a financial advisor, he or she should be able to provide you guidance. There are lots of great tools out there on the web as well. So T-Rowe Price's retirement and income calculator is one I really like, but bear in mind that their return expectations for asset classes are pretty lofty, so just keep that in mind as you evaluate the output.

Morningstar's Asset Allocator can also help you see whether your current nest egg is in a position to deliver you the income stream that you need during retirement.

Stipp: You also mentioned to me earlier that there are some retirement accounts that actually give you a little bit more flexibility, so as you get closer to retirement and as your children get closer to college, if you find that your situation is little brighter than you thought, there are ways that you can be flexible with those savings.

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