Should I Save for Retirement While I'm in College?

Saving for education: Image of piggy bank stacked on books in front of chalkboard
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It is true that the sooner you begin saving for retirement, the better off you will be. However, it does not make sense to put aside money for retirement when you are still working to earn your degree. It is especially true if you are going into debt each semester to pay for your tuition or room and board. You will end up paying more in interest than you will earn, especially while you are in school. Retirement should become your first priority once you do have a job. 

Extra Money – Focus on Retirement

If you are working while you are in school and you can pay cash for your tuition, you may consider putting aside money for your retirement. Before you do this, you should have an emergency fund of three to six months of expenses set aside. Additionally, you should not have any credit card debt. Once you do this, you can begin investing in a Roth IRA or your 401(k). Be sure that you have enough available to cover unexpected school expenses or that you are saving money to cover the time you will be doing your internship, and you may not be earning as much.

Invest in Your Earning Potential 

It is important to realize that your education is one of the biggest investments that you are making in your future. It will increase your earning power, and allow you to save more toward retirement after you graduate. While you are in school, you should focus more on your studies and the experiences that will prepare you to be competitive in the job market. It may mean taking a low or no-pay internship instead of putting money towards retirement. It may mean focusing on your connections and networking instead of on your retirement. If you are planning on going to graduate school, then earning top grades will benefit you more in the long run. 

Focus on Staying out of Debt

While you are in college, the longer view is landing a good job so that you will have the extra money to put away each month. You should also make it your primary focus to stay out of debt. The less debt that you have when you graduate, the sooner you will be able to pay it off and begin focusing on retirement. Some college students will take their loan money or grant money and invest it in mutual funds because the rate of return is generally higher. It is not a great idea if it is loan money. You should never speculate or use borrowed money to play the stock market. It can set you up for a financial disaster later on.

Learn More About Finances

If you are still in college, you may want to take a course on investing or money management while you are there. It is a great time to get acquainted with how the market works and how to choose a good investment. It will also give you the opportunity to watch the stocks and mutual funds without risking your own money right away so that when it is time to invest, you will be comfortable and confident in the decisions that you are making. You will not need to play catch-up on your retirement savings as long as you begin investing as soon as you land your first job out of school. It is a great time to start investing because you will not miss the money since you will likely be making more than you are used to making. If you have to wait to contribute to your 401(k), then you can open a Roth IRA and start there.

Look at the Big Picture

While you are in school, focus on getting good grades and making connections so you can land a good job once you graduate. Then you can start planning for the future with things like homeownership, retirement and eventually starting a family. Remember that things will work out in good order. School first, then your job, and the rest of your life. While you should focus on being frugal while in school, it is okay to put off saving for retirement until you graduate.