Invest for retirement or save for college? What your child should do with summer earnings.

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In the fall, all three of my children will be in college.

My husband and I have made a deal with them all. We saved to cover tuition, room and board. But they have to cover their books and personal expenses with their summer earnings.

There are some parents and financial experts who suggest that teens and young adults should use their summer earnings to start saving for retirement. It makes financial sense. After all, it’s time that gives investors a great edge. The younger you start investing, the more you are likely to have for retirement.

“When you are young, time is on your side,” certified financial planner Peter Hafner wrote in an article for Investopedia. “But as you grow older, it becomes more precious and you can’t get lost time back . . . The No. 1 way young people can get on a productive financial path is by beginning to invest now. Even if they begin with small amounts of money, they can experience the benefits of investing early. And these benefits are powerful. One of the greatest benefits of investing early is that you will put the enormous power of the financial markets on your side for a longer period of time.”

Read more: The Top 3 Benefits of Investing Early

Can summer earnings really make a difference?

It can, according to a study by Rubicon, an educational investment app. The company looked at how much students could have made if they had some summer money in “FANG” stocks — Facebook, Amazon, Netflix and Alphabet, Google’s parent company.

As reported by USA Today’s Adam Shell, Rubicoin figured out what someone making $10 an hour in a 25-hour workweek for 13 weeks each summer since 2014 would have if he or she invested just half of his or her before-tax earnings — $6,500 total.

Based on closing prices this past May 28, such an investment would be worth more than $15,000, Rubicoin calculated.

Read more: Investing in Facebook, Amazon, Google stocks could turn summer job pay into a fortune

But wait. While the study by Rubicoin makes a compelling case for young adults to invest, it doesn’t take into account that if the person is in college, their summer earnings could be better spent on college expenses to reduce any debt that a student may be using to go to school.

Plus, individual stock investing can me riskier than putting money in a low-cost index fund that would have more diversification that a bucket of FANG stocks. Not to mention that you have to be careful about chasing hot stocks. By the time you invest, you maybe buying at the high end.

Before encouraging your kid to invest for retirement, consider first whether he or she has a cash cushion. If you or your child is taking out student loans, summer earnings can reduce borrowing needs.

“If you’re sitting on a sizable chunk of cash from your summer gig and know you’re still on the hook for some whopping tuition bills, using that money to pay them directly could minimize your student debt load,” writes Maurie Backman for the Motley Fool. “And that’s something you’ll be grateful for when your monthly loan payments are much lower than those of your fellow graduates.

Backman has it right for what to do with summer earnings.

Pay college expenses. If parents aren’t covering college or are struggling to help with education costs, use the money to help with the cost of school.

Pay off any credit card debt.

Pay yourself first. “No matter your age, there’s a good chance you’ll encounter an unplanned expense at some point in the not-so-distant future, whether it’s a car repair or a medical bill,” Backman writes.

Pay for things you need. Earnings during the summer can help cover items such as a new laptop.

Pay your future retirement needs. I agree with Backman that if these first four areas of covered then you can encourage your teen or young adult to start investing for retirement.

Read more: 5 Smart Things to Do With Your Summer Job Earnings

And because, I know what some of you may be thinking, yes, you can help invest for your child.

Read more: The Benefits of Starting an IRA for Your Child

Just keep in mind that to contribute to an IRA or Roth your child has to have earned income from a job.

I’m not concerned that my children aren’t saving for retirement yet. Their earnings just barely cover their school and personal expenses. But once they finish college and start working full-time, you better believe I’ll be all over them to start saving for retirement.

It’s important to get your young adult investing for retirement as soon as possible. But they shouldn’t be pushed to do so ahead of other more pressing financial needs. They still have time on their side.

Your thoughts

Have you have conversations with a young adult child about investing for retirement? Send your comments to Please include your name, city and state. Put “Young Retirement Saver” in the subject line.

Retirement rants and raves

I’m interested in your experiences or concerns about retirement or aging. What do you like about retirement? What came as a surprise.

If you haven’t retired, what concerns you financially? You can rant or rave. This space is yours. It’s a chance for you to express what’s on your mind. Send your comments to Please include your name, city and state. In the subject line put “Retirement Rants and Raves.”

In last week’s newsletter, I asked: What specific steps did you take to prepare for retirement?

I was quite impressed with Leon LaFreniere of Escondido, Calif., and how he and his wife managed when he lost his job. His story has so many lessons.

“At age 58 1/2, my 35 year career as an engineer ended when the job I was doing was eliminated,” he wrote. “I had saved and planned all my working life and therefore it wasn’t a traumatic event. Though I could have found another job, I decided to try the early retirement route.”

Here’s what he got when he was laid off: “The company gave me 35 weeks pay, 35 weeks health and life insurance and a one time separation payment of about one month’s pay.”

He has a pension: “I worked for a large corporation and I have a pension which I could begin to take whenever. I took the 100 percent survivor option, which pays through the rest of my life and my wife’s life if she survives me.” What he did about health insurance once the company stopped paying: “I had been in a high deductible health insurance plan for several years and contributed to a Health Savings Account (HSA). When the 35 weeks of health insurance ended, I took COBRA for the next 18 months. Because I had a HDHP and an HSA, I could use the HSA to make the monthly insurance payments under COBRA. After COBRA ended we’ve had to buy individual insurance on the open market. It’s awful! But we have a government that is not interested in solving this problem so we just have to pay. My wife turned 65 last year and is now on Medicare. I have about 18 months to go until I’m eligible, and I can’t wait.”

On Social Security: “My wife and I each started collecting our Social Security at age 62. Both my wife and I had 401(k) savings plans and we rolled them over into IRA’s after I stopped working. We do take regular withdrawals from my IRA primarily to cover health insurance and taxes (property and income).”

Looking back: “As we approach the five-year anniversary of retirement we have more money now than when we started. We have taken some very nice vacations, and we have plans to do more. We both work at volunteer jobs and stay quite active. We have friends and volunteer work acquaintances, which keep our lives full and enriched. We both have hobbies, some shared, and we are never bored. The bottom line: “We were able to retire due to saving, planning and being fortunate to work for a company that provided a pension. We found a financial planner who takes the time to know us and our tolerance for risk. I think the choice of a financial planner is key. We had no idea how to create income and to take a regular withdrawal. We had been good at saving but learning to withdraw and spend was something we needed to learn. That’s our early retirement story. I love retirement.”

This couple had a lot going in their favor — a pension and clearly a good severance benefits. But they also illustrate that if you plan as best you can for retirement when life happens like an earlier than expected retirement dilemma, you have choices.

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