Of course you love your children and want the best for them. But if it comes down to choosing between funding their college educations, or funding your own retirement, focus on your own future first.

It's remarkably easy to finance a college education. Between student loans, grants, scholarships, summer and campus jobs, and maybe even some help from Mom & Dad, anyone who can be admitted somewhere can get money for college. Financing your retirement, on the other hand? Not so easy. Aside from perhaps a reverse mortgage (and even that will only get you so far), there's not much you can do to borrow the cash to pay for your retirement.

In addition, should the market smile upon you, or should your retirement costs wind up well below your expectations, you can always help your kids cover their college costs or loan repayments. When you put it all together, it becomes abundantly clear: Love your kids, but fund your retirement first.

There are many ways to save for your retirement, but the easiest and best just might be provided by your job. If your job has a 401(k) or 403(b) program, sign up for it. You can then have money automatically redirected from your salary toward your retirement plan. Your investments in such plans will grow tax-deferred, sparing you any tax worry on the dividends and growth in the plan until it comes time to withdraw your money at retirement.

In many cases, that money also comes off the top of your paycheck before state and federal income taxes, which lets you sock away more than you're giving up in spendable cash. In addition, your boss may kick in either a matching contribution or a direct contribution. The combination of pre-tax contributions, tax-deferred growth, and additional money from your boss just might make your 401(k) or 403(b) the most important part of your retirement plan.

Of course, deciding to contribute to your retirement is only half the battle. The other half is figuring out where to invest your cash. Inside your 401(k) or 403(b), you'll likely have at least a handful of choices. Those options can vary widely and may include choices across asset classes like domestic stocks, international stocks, corporate bonds, government bonds, and cash.

Generally speaking, you should weigh things like:

  • Your risk tolerance,
  • The time until you'll need the money, and
  • Other sources of retirement income (like a pension or Social Security)

... when determining which of your plan options should get your contributions.

In the short run, stock offerings tend to be more volatile than bond ones, which in turn are more volatile than cash. That short-term volatility risk, however, is the price you pay for the long-term superior return potential that generally accompanies stock ownership. In the long run, however, the potential returns are generally better with stocks than bonds or cash. In effect, the longer your time horizon, the less risky stocks usually become, and the riskier cash often gets.

If you haven't invested before, a stock fund might seem intimidating. To break it down into smaller parts, a stock fund is simply a collection of stocks. Those stocks themselves are just small slivers of ownership in companies. And those companies? Well, in an S&P 500 index fund (a broad fund that covers a huge chunk of the American market), they're generally businesses you may have heard of, such as these:


Trailing Earnings
(in Millions)

Portion of S&P 500 Index

Cisco Systems (NASDAQ:CSCO)






PepsiCo (NYSE:PEP)



McDonald's (NYSE:MCD)






Visa (NYSE:V)



Caterpillar (NYSE:CAT)



Stock funds are an important tool in your arsenal for two key reasons. First, they offer you instant diversification; this provides protection against the failure of any one company, while still letting you participate in the long term growth that stocks can provide. Second, most employer-sponsored plans will offer you a menu of pre-selected funds to choose from, which makes them a likely foundation for your retirement plan.

Index funds -- like one that tracks the S&P 500 and those companies above -- are a subset of stock funds. They're important because they tend to be a low-cost way of getting those potential returns. Since they're not actively managed, they only need to charge a small fee to pay for their administrative, recordkeeping, and rebalancing costs. The lower a fund's costs, the larger share of the potential returns flow to you, rather than to the fund's management company.

The very best time to start saving for your retirement is the day you draw your first-ever paycheck. If that day has passed, however, all hope is not lost. The next best time to start is today. The sooner you begin, the more you make time your ally rather than your enemy, and the better chance you'll have of seeing your retirement be a fulfilling and rewarding one.

At Motley Fool Rule Your Retirement, we think it's so important that you take those first critical steps down the path to a successful retirement that we'll let you try our service for free. Simply click here to begin your 30-day free trial. There's no obligation, and while you're trying us out, you'll have full access to all our tools, team members, and online resources.

At the time of publication, Fool contributor Chuck Saletta did not own shares of any company mentioned in this article. 3M is a Motley Fool Inside Value recommendation. Google is a Motley Fool Rule Breakers selection. PepsiCo is a Motley Fool Income Investor pick. The Fool has a disclosure policy.