What’s Your Highest Priority? House? Retirement? Or 529?

One of my friends had a baby last month. While enjoying the parenthood, the couple is also planning for their daughter’s future: save for her college. He sent me, among several other guys, an email last weekend for suggestions on 529 plans. After I replied by telling him that I have both 529 accounts and ESA account for my daughter and contribute $100 to each account every month, one guy responded like this:

I am not a good planner. I didn’t join 529 now. Maybe in the future. I believe a good lifestyle is first priority, like car and house. The second priority is our retirement. Then goes to kids’ college. Of course, if you have enough money (I believe you do), you can contribute to all of them.

And his situation is: started working last year after getting his PhD, bought a new car and a minivan last year, has a two-and-half years old son and a new born, and is planning to buy a house early next year.

While there’s noting wrong to live a good life with nice cars and a big house, should these top the priority list when it comes to planning for the future? And forget about taxable investments for a moment, how much can contributing a couple of hundreds to IRA/529 affect his plan of buying a big house? Finally, what makes him feel that after buying the big house he wants, he will have spare money to save for his sons education when the mortgage bill rolls in?

For a newly graduated, is there such a big conflict between saving for house downpayment and saving for his own retirement?

While his sons may get scholarships when they enter college, one thing is for sure: There is no such thing as retirement scholarship!

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3 Responses to “What’s Your Highest Priority? House? Retirement? Or 529?”

  1. Trent |  Nov 01, 2006 at 1:43 pm

    The house downpayment is the obvious choice here, because it’s an asset that you can use later to help pay for college via home equity loans and such, and it’s not going to be a tax burden if the child doesn’t need the help. I am keeping a small 529 for my child, but the brunt of my savings is for my home.

  2. The Sun |  Nov 01, 2006 at 3:10 pm

    Trent:

    I agree in this case the focus should be on the house downpayment. However, I don’t think it’s wise to simply put off retirement contributions (not 401(k) but IRA). Putting a small amount ($50, $100) into IRA shouldn’t be too much a burden, but after 30 or 40 years, the regular small contribution will be huge.

    I just think saving for downpayment and retirement can go in parallel.

  3. Lazy Man and Money |  Nov 01, 2006 at 3:39 pm

    I’m not seeing where he said a big house. If he’s buying too much then that can be a problem. Otherwise, I’m with Trent, and believe it’s an asset. My parents could choose to use their home for a large chunk of their retirement. The cars could be a concern, but I’m also betting that he’s been in school his whole life (having just got his PhD) and has driven whatever a $100 can buy that works. While I wouldn’t say go and buy new, I can imagine that the family might need two cars, but only if he has a partner (which you don’t mention).

    Also depending on what his PhD is in, I could see him having left over money.