Parents: Do You Save for College or Retirement?
Unless you’ve got a child prodigy or incredible wealth, most parents must choose which to save for first: higher education or retirement. Ideally, you have enough for both. But what if you don’t? I would suggest even the most loving parents should first fund their own retirement.
When it comes to higher education, your child has many choices. If they can’t afford Ivy League, there’s state or community college. They can (gasp) work part-time in high school and college, or even work full-time for a few years to save up before enrolling. I recently covered how to apply for FAFSA shortly after October 1, to optimize various state, national, and college-specific student aid opportunities. Maybe some military service? And, of course, there they can borrow to fund college.
In short, your kids have their whole life ahead to work on creative ways to pay for college. Retirement, on the other hand, is at the end of your income-earning years. Whatever you’ve accrued has to last.
If you instead run out of money in retirement, guess who you’ll likely be turning to for help? By then, your kids will need to be saving for their own kids’ college, and their own retirement. As a Kiplinger columnist recently observed, “The burden of parents who cannot pay their own expenses will likely be more of a challenge for your children than responsibly choosing a school they can afford and taking out a reasonable amount of student loan debt.”
Consider these two tips:
Remember the exponential power of long-term investing. The earlier you begin saving for retirement, the more dramatically your savings can grow over time. When you take money away from that, you’re effectively borrowing at least $2 from Peter (eventual retirement) to pay $1 to Paul (upcoming college).
Set expectations early on. As tempting as it may be to shelter your kids from financial concerns, I also recommend informing them sooner than later just how much you’re willing and able to spend on their higher education. Coach them on general financial literacy while you’re at it.
Bottom line, the sooner you set realistic expectations, the more time you and your children will have to plan for everyone’s ideal financial future – theirs, yours, and generations to come.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com .