What If Paying for College Puts My Retirement at Risk?

Kids going to college is exciting. It’s also expensive. And while most parents want to help their children graduate with little or no debt, you won’t want to jeopardize your retirement (and have them pick up the bill).

Balancing the desire to support your children with the need to protect your own financial security is tough. Here are some ways to deal with this particular “What if Monster.”

Financial and Emotional Pressure

The average student finishes their bachelor’s degree owing $29,560. Student loans can’t be discharged during bankruptcy either, and often have high interest rates. These loans interfere with people’s ability to save for retirement, buy a home, etc.

This places a lot of pressure on parents to help as much as they can (and, increasingly, parents are still paying off some part of their own student debt). Add in the emotional need to do right by your children, and it’s no surprise that too many parents sacrifice too much for their children.

College and Retirement – Not Separate Issues

First, it may seem selfish, but you should put your own retirement needs first. Helping your children pay their way through college is great, but if they then end up with the financial burden of supporting you, it can cause even more problems than outstanding debt. Your financial futureisyour family’s.

Which brings us to our next point. College and retirement are part of overall family wealth planning, not separate goals. Both are important, and the best strategy is one that supports both as much as possible. A financial advisor can help you determine the best course of action and set a budget for higher education that is reasonable. They can also model how college costs affect your retirement timeline. How much later are you willing to retire to help your children?

Mitigating College Costs

This doesn’t mean asking your children to give up on their dreams. But you should also have realistic conversations. This might mean talking about a school in-state rather than out of state, doing the first year in community college, or choosing a smaller school. Some kids can “sweep the gym floor,” but this is not an option for most.

Here are some other things you can investigate:

529 plans

These take two forms. One is a prepaid tuition plan, which allows you to lock in this year’s tuition at a specific school. This only works if your child already knows what they want to do. The more flexible option is a college savings plan, which provides tax-deferred growth and tax-free withdrawals for education expenses. You control the plan and how your child uses it.

Scholarships and grants

Have your student apply for every scholarship they are eligible for, even if they seem to be a long shot. Even a small scholarship can help a lot.

Financial aid

Even wealthy families are eligible forsome financial aid. You also need to fill out financial aid paperwork, in most cases, to apply for scholarships and grants.

Student contributions

If your child has a job, encourage them to set something aside for college. This also builds good savings habits.

Look into studying abroad

Sometimes you can get a very prestigious education for less than the equivalent in the U.S., and if your child is interested in other cultures or becoming highly fluent in a foreign language, study abroad can be useful.

Ask other family members for help

Don’t be too proud to take money from grandparents or childless relatives. You can also get a loan from a family member at much better terms than commercial student loans.

Encourage Smart Spending

You can also encourage your child to save money by buying second-hand textbooks (textbooks can add up fast) and reducing trips home. And of course, working on their grades so they are eligible for scholarships.

What If It’s Too Late?

Yes, the best time to start saving for your child’s higher education is before you bring your baby home from the hospital. However, it’s never too late. You can continue to contribute to 529 plans all the way until graduation. Having less savings also makes it easier for your child to get financial aid.

You can still help and remember that even a few thousand dollars less debt can make a huge difference. Just don’t wreck your retirement to do it.

Thinking About Your Kid’s College and Your Retirement

Ultimately, a financial advisor can help. We can model different scenarios so you understand the tradeoffs and get a better idea of how much money you can give your child and how much they may need to borrow. All family circumstances are different, and you are not a bad parent if you aren’t able to contribute much to your child’s training.

If you have a child considering higher education or a younger child who might want to someday, contact us at CrossleyShear. We can help you slay the “What if Monster” and help your child with college without risking your own golden years.

Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Dale Crossley and Evan Shear and not necessarily those of Raymond James.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.