May 31, 2022 – By Frank Corrado, CPA, CFP®, RLP.
Many parents are intent on saving for their children’s education. The recent market downturn has reduced retirement saving balances and has resurrected an often asked question, “Should I be saving for my children’s education instead of retirement?”
Here’s a message that all parents need to take to heart: It’s OK to put yourself ahead of your kids. In fact, putting your retirement needs ahead of their college costs is not only necessary but wise…and, ultimately, thoughtful, too.
Our guidance to clients is that after an adequate “emergency fund” has been established, your savings priority should then be directed toward retirement. Why? Because believe it or not, retirement is more of a certainty than continuing education, and no one will lend you money to do it!
A lot of parents do not like hearing this. They feel like there’s nothing more important than their children, and to fund their retirement first means they’re selfish or downright bad parents. Absolutely not!
You owe it to yourself and your children to plan for your retirement with intention. The retirement landscape has changed almost as much as the cost of college has risen. Pensions are gone. 401(k) plans are subject to market volatility, and the Social Security’s trust funds are shrinking, which makes program adjustments almost a certainty.
You’re on the hook for funding your retirement, and your costs in retirement are likely to be higher than they’ve ever been. Now more than ever, your long-term financial health is up to you — and it’s harder and harder to maintain financial security and stability, especially if you have thoughts of “earlier” retirement. You must set the appropriate retirement savings goals and contribute to them during your working years.
If that means saving less — or not saving at all — for college, then you need to cut back on how much you put toward college savings.
Sound harsh? It might, but we need to be realistic. Who else will fund your retirement if you don’t? Do you really want to be a financial burden on your children in their adult lives? The burden of parents who cannot pay their own expenses will likely be more of a challenge for your children than responsibly choosing a school they can afford and taking out a reasonable amount of student loan debt.
The Gift that Keeps on Giving
Do not despair! If you feel woefully behind in saving for your children’s college education, redirect your efforts into providing them with a “financial education.” The United States population ranks in “the middle of the pack” among all developed countries in financial literacy. Parents do have a role in improvement, one child at a time.
I have previously written an article, “How to Teach Your Kids Good Money Habits,” which provides some tips and techniques for parents interested in developing sound money values in their children. Your children should be prepared to face the “college experience” along with you, and you will be amazed how a collaborative effort can reduce the stress that is the norm for the process.
And the best part is that the lessons learned will last a lifetime and contribute to their future financial stability, an outcome which could even surpass the college experience itself!