What comes first: Employee retirement savings or kids’ education?
January 29, 2010 by Christian SchappelPosted in: Communication, In this week's e-newsletter - benefits, Latest News & Views, Management, Money, Pay and benefits
In today’s tough economy, many employees face a tough decision: Should they first focus on saving for their kids’ college education or their own retirement?
Assuming it’s truly an either/or situation, most financial planners say it’s better to focus on creating a retirement nest egg.
Why? Because holding assets like 401(k)s and IRAs don’t affect a student’s eligibility for financial aid. In fact, participation can help cut out-of-pocket college costs, because it reduces net income.
Secondly, there are plenty of unknowns that could affect students’ needs for funds. Will they attend a public or private school? Will they receive a scholarship? Will they attend a trade school or community college?
And unless the employee or spouse is in line for an old-fashioned pension, retirement savings will largely fall on the employee’s shoulders.
Social Security may help a bit. But unless employees participate in 401(k) and/or an IRA, most will someday be faced with three unpleasant options:
- delay retirement
- don’t retire at all, or
- retire to a lower standard of living.
5 helpful funding sources
As expensive as college can be, there’s at least the potential for some wiggle room in paying for it.
Some sources:
- Low-interest loans for tuition, books, etc.
- The student may qualify for a scholarship or grant
- The employee’s parents (the student’s grandparents) may be in a position to offer assistance
- Cheaper state schools or community colleges, and/or
- The student may work and contribute to his or her own expenses.
Tags: 401(k), college education, community college, financial planners, IRA, nest egg, retirement, state school, trade school, tuition
February 4th, 2010 at 2:42 pm
We did both: My wife and I saved for retirement AND put loads of money into our children’s education. Result: The “.com bubble” blew away much of our hard earned savings and it took a long time to even recover from that venture. As for our children, they are now well educated, have great careers, and I’m proud they actually make more than mom and dad. We now have less worries about our children in our old age, and we don’t feel guilty about “taking care of ourselves” as we continue to plan for our retirement years. I guess everyone has a different story to tell, but I think the greatest investment we can make is in our kids’ future. And by the way, we raised our children not to focus on “if they are going to college”; we raised them to focus on “when they are going to college”. It worked.
February 4th, 2010 at 6:00 pm
I don’t think parents owe their children a college education. That said, those who can afford to pay and wish to pay, should be able to support their children’s education. But I have also found that people who work to help pay their way through college often appreciate their learning more and work harder to get better grades, especially if there are scholarships available. If children need to take out loans for their education, they have a lifetime to pay it back, but parents often do not have enough time to make up missed retirement fund contributions. Don’t forget that parents can also help their children to pay back any outstanding loans after graduation and obtaining a job if they can afford to do it.
I have also heard of parents telling children that they will pay for college or for a wedding but not for both, so the children must choose. Ultimately, parents and children must make decisions that are right for each family.