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How Do I Save for Retirement, College, and Pay Off the Mortgage at the Same Time?

Managing multiple money goals can feel like a balancing act. How do you save for retirement, save for your kid’s college, and pay off the house early all at the same time? We hear you. That’s a lot to pay for, and it’s easy to get overwhelmed and confused. If you try to tackle it all at once, it can be hard to make traction.  

Thankfully, with the right plan, the process becomes clear and simple.

Put One Foot in Front of the Other

The best way to take control of your money is to follow the Baby Steps. Here are the first three steps:          

  • Baby Step 1: Save $1,000 for your starter emergency fund. 
  • Baby Step 2: Pay off all debt (except the house) using the debt snowball.
  • Baby Step 3: Save 3–6 months of expenses in a fully funded emergency fund.

When you’re working through the first three steps, you simply do them in order. However, people often have questions about Baby Steps 4 through 6. Here’s a quick definition of them:

  • Baby Step 4: Invest 15% of your household income in retirement.
  • Baby Step 5: Save for your children’s college fund.
  • Baby Step 6: Pay off your home early.

Now here’s where things can go sideways. People don’t know whether to work those steps in order, what’s most important, or what to do if they’re behind on saving for retirement. Let’s clear up the confusion.

Why You Should Invest 15%

People always want to know: Do I really need to invest 15% in retirement? Why not 6% or 8%? There are a couple of reasons.

  • Industry standard. Most financial advisors think if you invest 15% now, you’ll have adequate savings to enjoy retirement comfortably. Now, we’ll add this: If you’re behind on your retirement planning, that 15% won’t be enough. It’s a good place to start while you’re paying off the house, but after you write that last mortgage payment, throw everything you can at your retirement fund.
  • College and mortgage. If you’re investing 15% of your income, you can still put money toward Baby Step 5 (saving for your kids’ college) and Baby Step 6 (paying off your home early). Yes, you could invest a lot more than 15%—and you will later—but until you get Baby Steps 5 and 6 out of the way, just stick to the 15%.

The next logical question is what to do if you can’t put away 15% because of your income level. The answer: You work toward it. That means cutting back where you can (goodbye binge-watching TV shows) and increasing your investing percentage when you get raises. Once you’re up to 15%, you can put money toward paying for your kids’ college or paying off the mortgage early.

Why You Should Put Investing Before the Kids

A lot of parents object to putting 15% away for their retirement because that leaves them with little or nothing to put toward their kids’ college. We get it: Every parent wants to provide the best for their kids. We all want them to start out on solid ground.


How much will you need for retirement? Find out with this free tool!

But here’s the deal: There’s no guarantee that your kids will go to college. And—this is painful—there’s no guarantee that your kids will graduate from college. Now on the other hand, there’s a 100% chance that you’ll retire. It’s going to happen. At some point, your body just won’t let you punch the clock anymore. If you don’t have retirement savings, then what will you fall back on? Social Security? Yeah, we know. More like social insecurity.

Kids can apply for scholarships and grants. They can work to cash flow their way through college. There’s no massive scholarship fund out there to pay for your retirement needs.

Want to learn more about how to go to school without loans? Debt-Free Degree by Anthony ONeal is the book all college-bound students—and their parents—need to prepare for this next step. Grab a copy today or start reading for free to get plenty of tips on going to college debt-free!

College Fund vs. Mortgage Payoff

You’re investing 15% of your income and you still have some money left in your budget. Do you put money in the college fund or put extra toward the mortgage? The answer is yes. Huh? Here’s what we mean: There’s no hard-and-fast rule about how you approach Baby Steps 5 and 6. Every person’s situation is different, so we can’t tell you a definitive answer.

If you’ve been putting away money for your kids’ college since birth, then you can leave that alone and hit your mortgage. However, if you’re five years away from retirement and there’s still 10 years left on your mortgage, then go ballistic to pay off the mortgage. You don’t ever want to go into retirement with any kind of debt. No mortgage payment, no car loan, nothing.

If you want a more concrete answer, talk with a financial advisor. They’ll know the specifics of your situation and can crunch some numbers for you and give you a cost analysis both ways.

Why Not Tackle the Mortgage First?

We know you to get out from under the weight of a mortgage. Being completely debt-free would feel so liberating! You’ll get there, we promise. But by investing first, you’re giving time and compound interest the opportunity to do the most work. (Try our compound interest calculator that will do the calculations for you.) Not only that, but you’ll also earn a lot more in interest in an investment than you’d be saving if you paid off your house first. Let’s crunch the numbers.

Pretend you have a $100,000 15-year fixed-rate mortgage at an interest rate of 4%. You’d be making monthly mortgage payments of about $740. In 15 years, you’d pay a little less than $33,000 in interest. If you paid $300 extra per month, you’d save about $12,300 in interest. Not bad.

But what if you put that $300 into a retirement fund instead? After 15 years, you’d have over $125,000, assuming a 10% rate of return. Now here’s where it gets fun. If you left that money in the investment account for another 10 years, you’d have almost $390,000. Compound interest does its best if you give it lots of time to work.

Will you work to pay off your house early? Absolutely. As you hit the prime of your career, you’ll be making a lot more. After you invest your 15% every month, you should have money left over to put toward extra mortgage payments.

Picture yourself watching a football game. There’s offense and defense—one advancing and one guarding. The same applies to your financial situation. You’re putting money away for the future (playing offense), but you’re also doing a monthly budget and guarding against stupid decisions (playing defense). If you maintain a steady balance of these two mindsets as you put your income toward investing, saving for college, and paying off your mortgage, you’ll win with money.

To get started, we recommend using our mortgage pay off calculator to see how much extra money you can put down each month.

Need Help? Reach out to a SmartVestor Pro!

If the thought of retirement, college and paying off the mortgage early has you feeling, well. . . overwhelmed, don't worry.  You don't have to go it alone! Working with a financial advisor or qualified investment professional can help you tackle each step of the process without sabotaging your overall goals. An investment professional like those in our SmartVestor Program can help answer any questions you may have about planning for retirement and staying on track.

Find a pro in your area today!

This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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