You want the best for your kids: The best education, the best experiences, great friends and a safe, secure upbringing. It’s why we work hard and make choices along the way, postponing spending on ourselves in favor of them.
Often, that means putting aside money for their college fund. But putting a lot of money into a college fund isn’t going to help if your retirement savings suffers as a result. Sure, they’ll have an easier time paying tuition now, but down the road your kids may have to support you — right when they should be saving for their own retirement.
One of the problems is that the current generation of parents has always put the kids first in just about everything. We’ve gotten used to paying for travel-team sports, special camps, unique trips and experiences. A big college bill seems like a natural transition.
Consider this: A top-tier private school now costs $50,000 a year, while the cost of college has been increasing at twice the rate of inflation for years. That’s just tuition and fees, never mind transportation, insurance, books and food.
There was a time when parents could just write a check for tuition. Those days are gone. As the youngest of four children, I was lucky that my parents could pay my college expenses. It wasn’t cheap back then, but it also wasn’t as much of a financial burden as it is today. State universities were still an affordable alternative to the elite privates.
That’s not always the case these days. In fact, tuition rates have soared so much that even state schools are out of reach. If a grandparent wants to pay for college, that’s great. But it’s not the norm.
So if you’ve been socking away money over the years thinking you could save for your children’s college fund as well as your golden years, it may be time to stop and rethink your approach. When those inevitable campus tours roll around, your future student can take out loans, apply for grants and win scholarships that offset the costs of higher education. Believe it or not, there’s a lot of money out there, earmarked for higher education, that goes unclaimed every year.
You, on the other hand, can’t borrow to finance your retirement. In fact, borrowing against your 401(k) or making early withdrawals from an IRA should be a last resort because you’ll take a big tax hit.
This doesn’t mean that you can’t help your children financially. It does mean that you should prioritize saving for retirement. Once you meet your monthly or annual goal, if you have something left over for the college cookie jar, so much the better.
Silver lining
And if you feel guilty for putting your 401(k) first, ask yourself this: Who exactly is served if your children’s college is paid for but your retirement isn’t? Without a good-sized nest egg, you could end up being a burden on your children when you’re older.
The bottom line is that saving for retirement trumps saving for college. If parents have enough money put away to bankroll both retirement and an emergency fund, they’ll be that much better equipped to offer their children financial help when they need it most.
Here’s a silver lining: If your kids see you putting your retirement first, it might teach them about the importance of saving for their own retirement — and they might become early savers.
