It’s a conundrum many families face: save for retirement, or fund a child’s education? For a lot of families, education is a very high priority. It’s also a way of showing love for their child. Many parents struggled to put themselves through school and pay off student loan debt and they want to remove that future barrier for their child. It’s admirable and it does show love. Financially, though, it may not be the best choice.
Higher education has become expensive; prohibitively so for many students. The idea of paying for or greatly defraying that cost by socking away money for your youngster from an early age is very appealing. For most parents, this is accomplished through a 529 savings plan. Some states even offer a state tax deduction, but not here in California. It’s a great way to save for your child’s education, but it may not be the best financial move you can make.
Ask yourself a really direct, difficult question: do you want your child to be the one who helps you bathe and go to the toilet in your old age? Most likely not. You may be appalled at the very idea. Even though they love you, your child most likely doesn’t want to be your caretaker either. It’s probably not in their life plan any more than it is in yours.
For the vast majority, the point is you should save for your own retirement and potential long-term care needs first. Your goal should be to save at minimum 15% of your income, or more, over the course of your working life. Max out retirement plans and IRAs that you are eligible for, have a cash savings, and even a taxable investment account. The ultimate goal is to have those three pots of money: tax-deferred, taxable, and tax-free! Get your financial house in order as a first priority. Hit those targets first and then consider saving for your child’s education.
It may sound cold, but your child can always do what millions before them have done, and that is borrow, or work part-time, to pay for their education. Don’t forget the myriad scholarships, grants, and other school aid or work programs that may be available to them. Also, the education landscape is changing fast. Some locales now have free, or nearly free, tuition for two-year community colleges. If your child can start there and transfer, it’s a huge savings! Your child will have the rest of their adult life to pay back education if necessary. There is also the possibility if you accumulate enough wealth, your child may inherit your residual estate and can pay off any outstanding debt at that point. Remember, you really cannot borrow to pay for retirement. You can’t recover time either. Time is a key component in growing your assets. The last time I checked, no one was handing out grants, scholarships, or work study payments for retirement.
Take care of yourself first. If you do have any extra, then it can go towards your child’s education. But make sure you know if you do have that extra. As an independent CERTIFIED FINANCIAL PLANNER™, I can help you plan for retirement and prioritize your goals. Contact me and let’s get started. #talktometuesday #education #Hireaplanner #retirement #stressfree #lifeplan #savings