Would You Sacrifice Your Retirement Savings to Pay Your Kids’ College Bills?

College savings

Few people would argue with the idea that a college education is one of the best investments you can make. But who should pay for that education? Mom and dad? The student? The government through our taxes? Some combination?

T. Rowe Price recently published a survey and several of the questions revolved around parents’ priorities around saving for retirement and paying for their kid’s college education.

One question revolved around savings priorities. Saving for retirement

Notice how 67% of respondents—across three generations—said saving for kids’ college education is a higher priority than saving for retirement. And even for the Boomer generation, 57% said saving for kids’ college education is a higher priority.

A second question sought to uncover survey respondents’ attitudes about college. Any of these raise your eyebrows?

Attitude about college

I thought the second attitude above was quite revealing—76% of respondents said they’d be willing to delay retirement to pay for their kids’ college education. Many parents are clearly willing to go to great lengths to give their kids a good start in life.

You could extend this survey and ask about whether you should pay for your kids’ weddings, rent, living expenses, cars, or fund their startup idea. (We’ll discuss that in a future blog post.)

There are no easy answers to these questions and each situation is unique. In working with clients, I see three issues arise with how much financial support parents should give to their children.

1. Parents may not agree on how much support to provide.

One parent may want to be more generous in supporting the kids while the other may feel like the kids should be self-supporting in some of these areas. Obviously, this can cause conflict between the parents.

2. Parents may be in agreement to support their children in these areas—but to the detriment of their own retirement.

This is a fine line here. Both parents may agree in supporting their children financially but there may come a point where it’s hard to know when the support becomes so great that it completely jeopardizes the parent’s ability to retire with the lifestyle they originally desired.

3. Parents are wealthy and can financially support their children—but they provide too much support that their kids “fail to launch.”

If mom and dad become “The First National Bank of Kids,” it’s easy for the kids to rely too much on mom and dad and never make it on their own.

When it comes to paying for college, I advise my clients that in the worst case, you, or the kids, can pay for college as you go. But, and this is a big but, you can’t “pay for retirement as you go” because you don’t have the income and discretionary cash flow from work during your retirement years.

Consequently, I always recommend that my clients make retirement savings priority number one and that should be a non-negotiable. Plus, if you prioritize your retirement savings, it’s actually better for the kids because you are less likely to be a financial burden on them when you are retired.

I realize that student loan debt is a major issue for our young men and women coming out of college. And while it is a burden for students in their 20s to dig out of that debt, the good news is they have decades of career-earning power to pay off the debt and build up their savings. By contrast, if parents use their retirement savings to cover their kid’s college costs, there’s very little time left to recover those savings through working.

Ultimately, each family has to decide how to strike a balance between supporting their children and supporting their own retirement. Getting it wrong could be quite costly for both the kids and parents.

Give Us a Call

If you have any questions or want some additional help in saving for retirement, please let us know.

Please give our office a call at (913) 624-1841 or CLICK HERE to send me an email. We are here to help you.

About Bill Keen

Bill Keen is the founder and CEO of Keen Wealth Advisors, an independent Registered Investment Adviser serving affluent clients preparing for retirement. Bill brings over 23 years of financial services experience and holds the CHARTERED RETIREMENT PLANNING COUNSELOR designation. Bill created Keen Wealth Advisors to build one of the country’s most personal and trusted wealth and retirement advisory firms. He is passionate about serving his clients as a trusted financial coach.

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