As someone who graduated from college with a modest pile of debt (and that’s after staying in public school and working my way through school to pay for a lot of my expenses along the way) , when I had children, I told myself very early that I would do my best to finance their college education in large measure.
I know that getting a degree with loans held me back as a young adult. I haven’t started funding a retirement account, for example, until these loans are repaid, whereas if I hadn’t had this debt, I would have started saving and investing a little earlier.
But as important to me as it is to try to send my kids to college, I refuse to put their education ahead of my retirement savings. Here’s why.
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When borrowing just isn’t feasible – or desirable
Borrowing for college may not be ideal, but there are plenty of loan options available for those pursuing an education. Now, you can technically say the same thing about retirees who need cash – there are different borrowing options they can consider, such as home equity loans or reverse mortgages (both of which have disadvantages).
But after decades of hard work, I don’t want to spend my last years borrowing money to survive. I don’t even fancy a modest mortgage payment hanging over my head. And that’s why I insist on maximizing my contributions to my retirement plan each year before putting money into my children’s college accounts.
Because I’m self-employed, I have the option of saving for retirement in a solo 401(k). Traditional 401(k)s currently cap at $20,500 for workers under 50 and $27,000 for those 50 and older. Solo 401(k), however, have higher limits than that. How much you can contribute to any of these plans depends on your income, but either way, I make it a point to max out my solo 401(k) before a penny of my income goes to l saving for my children’s education. .
Set your priorities
If you’re struggling to balance retirement and saving for education, you’re in good company. And it is noble to want to contribute as much as possible to the education of your children.
But you should never let your desire to finance your children’s education jeopardize your retirement. If you neglect your nest egg to be able to send your children to a private school and cover their living expenses, you may struggle to cover yours the cost of living once your time in the labor market is over.
Don’t forget that Social Security is confronted reductions in benefits if lawmakers fail to close its funding gap. This makes saving for retirement all the more urgent.
Additionally, sacrificing your retirement savings to pay for college could put you in a position where you are then forced to rely on your adult children to help you financially later in life. If you’re the type of parent willing to pay for college, then you’re probably the type of parent who doesn’t want to weigh your kids down as they try to achieve their own adult goals. A good way to avoid this scenario is to first save money for retirement and then set aside money for your children’s education.
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