Should Parents Save For College or Retirement
As a parent, you’ll be burdened with a lot of difficult decisions.
One of them is should you save for college or retirement.
We all know the cost of higher education continues to skyrocket.
As parents, we want to provide our kids with the means to get their college degree.
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Save For College or Retirement
In a perfect world, you would have enough money to save for both your retirement and your kid's retirement.
Unfortunately, we don't live in an ideal world, and many times families don't have enough resources to do both.
Not being able to save for your child’s college and your retirement often leaves families struggling with what to do.
Many times making the wrong decision.
Just so there's no misunderstanding you should prioritize your retirement over your kid's college.
For many families, this is going to be either a sigh of relief because it confirms what they wanted to do but thought it was selfish.
However, others will get upset and think I'm selfish for not making children’s college expenses a priority.
Don’t get me wrong if you can finagle your family finances to do both, you should.
The problem is it's not always possible, so it's a matter of trying to make the best decision.
Why You Should Prioritize Your Retirement Over Your Children’s College
There are several reasons why we believe push comes to shove you should focus your efforts on your retirement versus saving for your child’s university expenses.
1. Your Kid Doesn’t Have to Go to College, But You Have to Retire
Don’t get me wrong I’m a big believer in “higher learning education.”
Most of us have heard adults with only a high school diploma earn on average 1 million dollars less over there lifetime than college graduates (source).
More importantly, over 30% of high school graduates will not go to college.
We all know less than 100% of the ones that do go will graduate (source).
Do you know how many people are going to retire or want to retire at some point?
I haven’t looked it up, but I’m fairly certain it’s around 100% give or take like everybody.
2. Your Kid Can Get Scholarships to Pay for College
I’ve never heard of a scholarship or grant given out to someone for retiring.
If you’ve heard of it, please let us know.
As far as I know, scholarship for retiring is not an option.
However, scholarships and grants for college will be an option for your kids.
Scholarship databases such as Fastweb are great resources your child can use.
Scholarship databases allow you to find and apply to different scholarships and grants from around the country.
3. Working Through College Sounds Better than Working in Retirement
I know some parents who are so set on their kid not having to work through college.
They want their kids to enjoy college and get “the college experience.”
The typical college experience is a luxury. There’s nothing wrong with it, but not everyone can afford it.
It’s also worth mentioning your child is more likely to do better in college and graduate with their degree if they’re working while going through college (source).
4. Your Child Can Borrow Money For College; You Can’t For Retirement
federally insured student loans
and if need be parent plus loans (don’t recommend this one)
there are plenty of options you and your child have at your disposal to help pay for college.
When it comes to retiring, you can't really borrow for retirement.
Sure, some throw out ideas like reverse mortgages.
However, programs such as a reverse mortgage have many downsides, and the benefits are limiting.
I'm not necessarily a big fan of student loans, but if needed your child can take out student loans.
If they’re getting a degree in a field that’s marketable and they're smart about it, they'll have time to pay it off and still be successful.
As a side note, there are resources out there to help your child pay off their student loans.
5. There Are So Many More Options to Pay for College
There are many options available to help fund your child’s college.
If your child does get student loans, there are options available to help your child payback those student loans.
For example, the military, and some employers will help pay back student loans.
Your high-school graduate will have options available to them, you won't even come close to having when you're up for retirement.
For those reasons, when deciding whether to save for retirement or college, pick retirement.
6. Save for Retirement Now, Help Later
When deciding how to save for kid’s college or retirement, some parents assume it's one or the other.
You see after you're sure you're on track for retirement you can always double back and help your kids with some college expenses like tuition or books.
Even just letting your graduate go to college from home can save big on room and board costs.
What You Should Not Do To Pay for Kids College
When parents are desperate to help their children pay for college sometimes, they make decisions that aren’t in their best interest.
Below are some of the decision we believe you should think very carefully about before going down that road.
1. Raid Your Retirement Account to Pay for kids College
Roughly 4 percent of parents are withdrawing their retirement money to help pay for their children’s college expense (source).
Pulling money from your retirement account to pay for kid’s college is problematic for a multitude of reasons:
➩ Tax implications
➩ Withdrawal penalties
More importantly, you're draining your nest egg.
Many well-intentioned parents are comfortable doing this because they’re making what we consider mistake #2 which is…
2. Relying on Your Kids for Retirement
You do everything you can for them because you love them and when they get older, you expect them to help you if needed.
The unfortunate thing is it doesn't always happen like you thought it would.
When it comes to saving for college versus retirement not saving for retirement puts you at risk of relying on your kids to take care of you during your golden years.
Relying on your kids for your retirement is not ideal.
For starters, you assume your kid will be able to help you. I want to challenge two assumptions you’re making.
The first is expecting your child will be able to help you. The second is assuming if your child can help you, they would.
According to Go Banking Rates:
➤ Less than 15% of children said they would fully support their parents during retirement.
➤ Less than 15% of children said they would support most of their parent's expenses once they retire
➤ Less than 40% of children said they would provide financial aid to their parents as needed.
➤ Almost 40% of children do NOT plan to provide any financial aid to their parents
Go Banking Rates’ article explained middle-aged adult children struggled to pick aiding mom and dad’s retirement over supporting their own families and preparing for their kid's college expenses.
Older adult children were not likely to help either because even with their kids out of the house they were trying to catch up on their retirement.
What their survey showed is the problems with relying on your kids for your retirement.
By not focusing on your retirement you could put a burden on your kids later.
Your kids could not be willing to help.
They might be willing to help but not able to.
Your children could be saddled with the burden of
their kid's college
taking care of their in-laws
and their retirement
…thus repeating the cycle.
Break the cycle.
Take control of your retirement.
When it comes to kids college or retirement.
Pick your retirement.
3. Depending on Social Security
We’ve covered the options available for your child when it comes time for them to go to college.
We’ve covered why you shouldn’t depend on your kids for retirement.
The last thing I’m going to cover is what we hear frequently.
“I still have social security.”
Is faith in social security enough for you to pick your kid’s college over your retirement?
There have been many speculations about what will and will not happen to social security.
Those speculations are beyond the scope of this post.
Instead, let’s look at social security as it is assuming no significant changes.
We’re going to use the year 2018.
The maximum social security payment was $2 788 per month or $33,456 per year.
The average payments of social security are about $1,404 or $16,848 per year (source).
As you can see if you rely solely on social security for your retirement you could be in trouble.
The maximum amount is only for those who maxed out their earnings for the previous 35 years and retired at the age of 70.
It’s safe to say most people will fall somewhere around the average.
To depend on almost $17,000 as your sole source of income is something to avoid.
If You Can Save For Retirement and Kid’s College You Should
If you take some of my comments in a vacuum, it might seem like I’m against saving for kids’ college fund.
On the contrary. I am pro saving for kid’s college.
I plan to start one for my kids, and I plan to write about ways to help parents save for college in the future.
What I’m against is sacrificing your retirement safety net for kids’ college.
I want you to be able to retire comfortably in your golden years.
To summarize everything, we talked about when it comes to the save for college or retirement argument:
Prioritize your retirement over your kids college
Save your own money to make sure you can support yourself.
Don't depend on your children for financial support for retirement
Your kids have many options to pay for college. You don’t have many options for retirement.
If you save for kid’s college and don't save for your retirement, you might end up being a burden to your kids
Don't depend on social security
If you can trim your family budget to save for both kid’s college and retirement you should.
When it comes to saving for college or retirement, did we miss any other arguments?
Please take a moment to share this post so that we can educate others.