With the current trend of tuition rising almost six percent above inflation, it’s no wonder parents have made education saving a priority in their financial goals. In an ideal world, one could save enough for retirement and education at the same time, without sacrificing one goal for the other. However, faced with depleting pensions and social security, parents often find themselves having to choose between the two.
Which leaves the question – if you have to make the decision, should you prioritize saving for your children’s education or retirement?
While it can be a hard pill to swallow, you should prioritize saving for your retirement over your children’s education. Although it might seem counterintuitive, consider the following:
- There is no loan for retirement, but there are a variety of financing options for education.
- If you don’t focus on saving for retirement during your earning years, you run the risk of putting the burden of your retirement on your children.
Still not convinced?
Think about the oxygen mask analogy you’re given while boarding a plane. You need to place the oxygen mask on yourself before you place it on your children. Ask yourself how prioritizing education over your retirement will affect your ability to retire when and how you want. Will you have the finances to last you throughout your retirement years?
But can’t saving for retirement wait for just a few years?
- Don’t risk it. If you miss out on saving for retirement, you can’t always make it up, but your children will have many earning years once they graduate to pay back their student loans.
- It’s important to focus on retirement as soon as possible to take advantage of compounding interest. You might find that as you continue to earn and save more money, you’re able to start saving for education without letting go of your retirement goals. However, it’s important to focus on retirement first.
So how do you explain this to your children?
- First, it’s important to be upfront as soon as possible to help your children prepare, explore options and make realistic college goals.
- Be open and honest about what you’re prepared to give. You won’t do them any favors if you pretend you can send them to the expensive college of their dreams.
- Explain to them that by choosing to prioritize your retirement you’re trying to solidify your future, so you won’t be relying on their help when you’re no longer receiving a paycheck.
Even if you can’t give financially, you can give in many other ways by:
- Researching financing options, such as scholarships, loans and grants.
- Helping them make a wise decision on what school to attend. Show them the impact varying loan amounts will have on their monthly budget post-graduation. You could even take into account the average salary of the career in which they’re interested.
- Coaching them to think long-term. While your children might have dreams of going to college out-of-state or to a private school, an in-state school may be more economical, particularly if they plan on going to graduate or medical school.
- Teaching them about budgeting and saving before they go to college, so they will be financially prepared once they graduate. If they have any summer or part-time jobs, try and advise them to save a portion of their earnings to help them once they do go to school.
At Legacy Next, our planning portal can help you project how much you’ll need to save for your goals, and the impact big purchases, such as paying for your children’s school will have. Get more information on how we can help you grow smarter. We’d love to help you position yourself for the future you envision.