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Your children come first; that’s just the conditioned nature of being a parent. From diapers to preschool to the latest games and tech gadgets, and maybe even to their first car—you’re providing for your children’s present while saving for their future. But how do you avoid sacrificing your future?
Financial planners commonly point out that you can get a loan for college but you can’t get one for retirement.1 So, while children can turn to student loans, grants, scholarships, and part-time jobs to fund their education, parents are limited to early-investment saving to fund retirement.
Unfortunately, two recent surveys indicate parents are only too willing to sacrifice their own retirement security for their children’s education. The first survey, from MassMutual, showed that the vast majority of family financial decision makers said that paying for their kids’ education ranked far above saving for their own future medical expenses or retirement. Not surprisingly, only three-in-10 American parents are confident that they are adequately preparing themselves financially for retirement.2
The other survey from T. Rowe Price stated that rather than have their children take out loans, 53% of the parents polled said they’d prefer to tap their retirement savings to pay college expenses. Meanwhile, 49% said they’d be willing to retire later so they could pay their children’s tuition.3
This sobering scenario—robbing Peter (retirement) to pay Paul (college)—can be mitigated by partnering with your children on education savings. Set a budget for what you can afford, after factoring in the necessary retirement savings, then work with your children to find a way to fill in the gaps.
Here are some popular options for getting a head start on saving for college:
Although there are many ways to save and pay for college, the options for saving for retirement are not that plentiful. In fact, the following three examples highlight ways in which retirement savings are being eroded, which only places those who choose their children’s education over their own retirement in an even more precarious position.
As noted earlier, the best way to accomplish the dual goals of paying for college and sufficiently saving for retirement is to work together. The earlier you invest in a college savings plan, the better. But there are all sorts of strategies for making college more affordable:
“Have your child start at community college for two years and live at home; have them take AP classes in high school to get a year or more of college under their belt; participate in programs like Peace Corps or AmeriCorps that help pay for college; go to a reasonably priced state school, and get a masters at a name school,” Mackey McNeill, president of Mackey Advisors, suggested to Forbes.com.2
This is the child’s potential contribution. But your contribution, as parents, is to prioritize your retirement savings. Because, without a substantial nest egg, you could become a burden on your children when you’re older. If your kids see you placing retirement first, it may teach them about the importance of saving for their own retirement. That could end up being the best payoff of all.1
1 "Don't Be Too Generous With College Money: One Financial Adviser’s Story," Time.com, March 2015. http://time.com/money/3740023/parents-paying-college-saving-retirement/
2 "The Parent Trap: Pay for Kids College or Save for Retirement," Forbes.com, February 2012. http://www.forbes.com/sites/sherylnancenash/2012/02/29/the-parent-trap-pay-for-kids-college-or-save-for-retirement/
3 "For many parents, paying tuition tops retirement," USAToday.com, March 2015. http://www.usatoday.com/story/money/personalfinance/2015/03/17/paying-tuition-outweighs-saving-for-retirement/70152912/
4 "What’s the Price Tag for a College Education?" COLLEGEdata. http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064