Saving for Your Children’s Education vs. Retirement

Those of us with children will agree that we want the best for them and will do almost anything to help them succeed. But what if that comes at the expense of our own retirement?  Parents know that raising kids makes for a busy lifestyle and dollars that often get stretched very thin, from children’s younger years when daycare payments can easily exceed a thousand dollars per month, to school-age kids who may get involved in costly extracurricular activities (sports, music lessons, etc.) and/or private K-12 schooling.  This can result in there not being a lot left over at the end of the month to save for their future college costs, let alone your own retirement.

So, what is a parent to do?  It really comes down to personal choices, and sometimes sacrifices.  Are you willing to work an extra 3, 5, or even 10 years in order to send your children to the best college or university and still have the retirement lifestyle you are envisioning for yourself?  Or is it your personal philosophy that your children should help pay for a substantial portion of their own higher education, even if it means they need to take out sizable student loans in order to do so?

Children’s Education vs. Retirement

Philosophies on this run the gamut, so below are some facts to consider:

– You cannot finance your retirement.

The closest thing to it is probably a reverse mortgage (a type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage is required until the borrower dies or the home is sold), but most financial planners I’ve talked to are opposed to this in most circumstances.

– Parents and/or students can take out student loans to pay for college.

For the coming 2013-14 school year, the interest rate for undergraduates is 3.86%, and for graduate students it is 5.41%. The rate for PLUS loans, which are taken out by parents of students and graduate students, is 6.41%.1 These rates will lock in for the lifetime of the loan – not bad!  And on top of these reasonably low rates, some student loan interest is even tax deductible for those who qualify.

– There are many ways to make college more affordable.

  • Students who qualify should consider taking college level courses while still in high school, if possible, to earn college credits for a fraction of the cost (or maybe for no cost).
  • Soon-to-be college students should consider whether the cost of certain schools on their wish list is justified by the future opportunities it is expected to bring.  In some cases, an in-state public college or university can provide just as promising future opportunities as their higher-priced, out-of-state and private school counterparts.
  • Students should research all of the potential scholarships and/or grants that they may qualify for and apply for as many as possible.
  • Students can get a part-time job on campus and apply part of their earnings toward tuition/fees/books and save the rest.
  • The American Opportunity and Lifetime Learning tax credits are currently available to taxpayers who qualify (consult your tax advisor) which can help offset a portion of the cost.

– The only way to make retirement more affordable is to spend less.

Some parents might decide that they are willing to do this, but it pays to map everything out with the help of a qualified financial advisor or a CERTIFIED FINANCIAL PLANNER™.  Doing so can help parents make well-informed decisions as to whether the trade-off of spending more on college is worth having less during retirement.

Whatever you decide, just make sure you start assessing your options well in advance, communicate with your child about what he/she is responsible for financially, and that all family members are comfortable with the decisions made.  And as a bonus, your child is likely to get a good financial lesson out of the process—and that is priceless.

 

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Jordan Lochner Mills
Jordan Lochner Mills

CFP® | Senior Financial Advisor

Jordan Lochner Mills, CFP®, is a Senior Financial Advisor for Wipfli Hewins Investment Advisors in Minneapolis, MN. Jordan focuses on personal financial planning and investment management for individuals and families, and also specializes in planning matters related to women investors and retirees.

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Saving for Your Children’s Education vs. Retirement

time to read: 3 min