Retirement vs. Funding Your Children's College Education
As many parents start ramping up their retirement planning efforts, their children are also preparing for an important next step in their lives: higher education. It may be overwhelming to have to manage both at once, but it’s important to make some very hard decisions. If you’re thinking about tapping into your retirement accounts to support your children’s education, ask yourself a few questions:
- Is this a sacrifice I can afford to make?
- Are there other ways to get the money we need?
- How much is my child willing to contribute?
It’s no secret: College is very expensive, whether your kid attends a college close to home or in another state. According to the College Board, the average cost of tuition at four-year private colleges is $41,540. After room and board, you could possibly spend over $55,000 per year.1 Although in-state colleges may be cheaper, the associated expenses are nonetheless significant.
Putting a Plan in Place
One of the first things to do after evaluating the possible cost of tuition is to consult with a financial planner. They will help you assess your goals, look at your current retirement plan, and provide objective, realistic guidance on whether your finances can meet your expectations. Many families find themselves considering tapping into retirement savings to fund their children’s higher education, but this may not be the best option.
While evaluating your financial portfolio, you may realize that your retirement savings can’t withstand such an expensive hit and that you need to look at other options. Now is the time to draw your children into the conversation and make decisions as a family.
Avoiding the Guilt Trap
Parents always want the best for their children, and modern society sometimes shames parents who are unable to put their children through school or are unwilling to sacrifice their own retirement funds. As the cost of college continues to rise, your children should take a vested interest in their education and be willing to contribute. Think about this: What if you paid for a very expensive college, and your child decided that they no longer want to attend? You would’ve wasted precious retirement dollars that you may not be able to replace.
Most financial professionals tell parents to prioritize retirement savings for good reasons. You can borrow funds to pay for college, but nobody lends money for retirement.
Millennials have reshaped the notion of college, opting to make their own rules. Having a stake in their own future makes this next step more meaningful to them, helping to take some of the burden off you. Being practical about your situations and empowering your child to make a commitment to their education teaches them responsibility and provides them guidance for the future.
Additionally, working with a financial professional can help you set realistic goals and offer solutions so that everyone can have a vested interest in paying for college without you having to compromise your retirement fund. In today’s economy, it is important to be strategic and avoid negatively impacting your retirement.
For more information, please contact Stephen Blahovec and Michael Rausch of North River Wealth Advisors. We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country. To learn more, contact us here.
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