The following article is by Kristi, our staff writer. She is a great freelance writer, blogger, wife, and stay at home mom of two.
Starting out in your first real job, either fresh out of high school or after you receive your college diploma, you feel like you have all the time in the world to prepare for retirement. It feels so distant, and when you’re working a low-paying job, you don’t really want to part with money to prepare for the long-distant future.
Then, if you get married and have kids, you have a new fund to worry about: that bundle of joy’s college tuition. When you’re holding your newborn, again, you feel like you have all the time in the world to save. Seventeen to eighteen years feel like an eternity when you’re just starting out. At least, that is how I felt when I had my first child.
College savings has become a retirement problem
Now that I’m not exactly fresh out of college, and my kids are getting older, the worry about how I will pay for both retirement and college has really started to creep in. I now realize, with alarming clarity just how much college savings is a retirement problem.
Having crunched the numbers, I know that we would have to be saving (roughly) at least $2000 a month from now until our kids are ready for college, to be able to pay for a state school (never mind a private school…it’s not going to happen) for both of our kids. We’re working on our budget and trying to find ways to save more, but $2000 a month is a complete impossibility, especially since we need to be saving for retirement. Let’s just say, I’m really hoping for some scholarship opportunities or a military academy.
Never deplete your retirement accounts for your kids
A few weeks ago, I talked about how many parents influence their kids’ career choices, either directly and indirectly when they help pay for their college education, and in the comments, many readers voiced their opposition to going into debt to pay for a child’s education.
As much as I want to send my kids to school completely out of pocket, and give them a running start in their adult life, I know that realistically, it’s probably not going to happen. I’m happy to take out a few parent loans, but my kids are going to have to meet us halfway, get a job during school, maybe take out a few loans themselves, or if they’re lucky, get a scholarship.
College savings boils down to parents not being able to save for both, and at the end of the day, they have to choose, forgo putting their kids through school to have enough money for retirement, or use up their retirement funds to put their kids through school. For some families, they have neither the funds for retirement nor their kids’ education.
If you find yourself facing this choice, I urge you to choose your own future and save for your retirement.
Time is on your kids’ side, not yours
Your kids have the rest of their lives and the whole of their careers to pay off school and build their retirement. Time isn’t on your side. You want to retire someday (maybe even someday soon). If you don’t have enough money to reach your ideal financial goals for both college and retirement, one goal will need to take priority. As hard as it is to focus on yourself and not your children, retirement should be your priority.
Put your needs first
If you put your needs behind those of your kids, you’re going to be left with no way to finance your retirement. You don’t have your entire life ahead of you. In the next 20 or 30 years, you might not have the ability to work as long or as hard as you once did.
There’s also the real possibility that you could start to have serious medical problems or difficulty with movement. If you spend all of your retirement savings on sending your child to college, you may be left struggling, both physically and financially, during your retirement years.
Your kids have access to student loans
Student loan debt is a problem in our country, and there’s no question that we need to see some sort of reforms to student loan process. While not ideal, student loans are a feasible option for your kids if they want to attend college. Any student at any level of financial need can receive an education loan. Whether it’s a fully-funded Pell grant or just an unsubsidized Stafford loan, your child will have options for financing their college tuition. You, on the other hand, can’t receive a retirement loan.
Student loans are a nuisance, but our kids will be ok even if they have to repay debt. With you as their teacher, they’ll have the financial base to understand how to build savings and grow wealth.
Don’t lock yourself into high-interest-rate debt
If you get rid of your savings to pay for college, you may have to rely on credit cards, which much higher interest rates than student loans, to pay for food, gas, and clothing while you’re in retirement. Federal student loans have reasonable interest rates that your child will be able to manage to pay off in time, and they will be better off paying for student loans with significantly lower interest rates than you would be if you were forced to rely on credit cards in retirement.
Also, you may have looked into a home equity loan as an option for affording to fund your child’s tuition, but think carefully about the financial implications if you do. You don’t want to risk losing your house if you aren’t able to make payments on the loan. Your kids will be better off securing their education with student loans than by putting your home on the line.
Help how you can
Even if you can’t afford to pay for school, make sure to fill out your financial information on the Free Application for Federal Student Aid (FAFSA). Guide your child through the loan process and help them to understand the documents that they’re signing.
If you’re faced with the choice of either funding your child’s college or your retirement, don’t put your future at risk. You can still be there for your kids without draining your retirement funds.
Help them where you can by helping them pay for room and board or for their textbooks. But don’t ever feel obligated to go into debt and have no plan for your future to fund theirs.
By all means, do what you can to set them up for college, but don’t put your quality of life, your home, or your retirement accounts on the line to help pay for it.
Are you facing this dilemma? Have you thought about your game plan for funding retirement and/or college?
Image by Queen’s College