Clients often feel that they face a conundrum: save for retirement, or save for their children’s education. Many believe that saving for their children’s education is an absolute must, a responsibility. For many families, education is a top priority and they want the best for their children. For many parents who struggled to pay for their own education, this impulse can be even stronger. There’s nothing wrong with this desire to save and education is invaluable. So, what do you do; which takes priority?
When addressing this conundrum, ask yourself one simple question; can you borrow to fund your retirement? The answer is no. Your children, if necessary, can borrow for their education and as challenging as it is, they have years to repay. You cannot borrow for your retirement and then spend years paying it back. There just simply isn’t the time or income stream in retirement and nowhere to borrow from. Retirement savings simply has to take priority.
That’s not to say you cannot help your children. Keep in mind that saving for your own future and a secure retirement is helping your children. If you save sufficiently for your own needs, you will not need to rely on your children in retirement. This will be beneficial for you and for them. If you have saved sufficiently for retirement, you may have enough money to help pay off student loan debt for your child, or possibly gift them money for a home purchase. Having ample savings in retirement is better than losing out on investment returns and years of compounding by funding your child’s education at the expense of your own security, comfort, and peace of mind.
If you are going to fund education for your children, make sure you have met your retirement funding goals first. Be sure to max out that 401(k) plan at work, save in Roth account, save in a taxable account, and have your cash emergency fund in place. Thereafter, if you have the extra cash flow, go ahead and calculate what amount you can allocate to your children’s education fund. Just be sure you prioritize your retirement savings.
If you need budgeting help, retirement savings, debt reduction, or an education savings plan, let me know. As an independent Certified Financial Planner™, I can help you make decisions and layout a plan to reach your goals. Contact me and let’s get started! #talktometuesday #education #Hireaplanner #retirement #education #529 #income #debt #savings #CFPPro #moneyhabits