One of my readers recently asked me this question:
Should I use some of my retirement funds to help my kids with their schooling? Many of my friends plan to pay for their children’s educations. Is it an obligation for parents?
This is a question that is getting a lot of play right now. It is natural for parents to want to help, but it may not be fiscally sound to raid the retirement funds to help your children pay for college. Even if you aren’t taking the money out of your retirement account, even putting less in so that you pay for your kids’ college may be a bad idea.
Why do parents feel they have to pay for college?
Of course you want to give your children a good start in life. But paying for everything may not be the best way. Teaching children valuable money skills such as investing, saving and managing a bank account will benefit them more in the long run than taking on their tuition costs. But in today’s world, we are made to think that we should be handing everything to our kids, lest we be painted with the “bad parent” brush. (Miki Saxon, at Leadership Turn, addresses the “children as special” myth that can be as damaging.) However, it is not bad parenting to raise your children to take care of themselves.
Secure your retirement account first
It is not wrong to secure your retirement account before setting money aside for your kids’ college. Contribute the maximum allowable to your retirement accounts, and then see what is left over for a 529 college savings plan or some other type of account. You should make your retirement funds your first priority. It has been famously said, by a number of gurus, “You can get loans for college. There are no loans for retirement.”
My parents made it clear to me that I was in charge of my tuition. They said they could afford a certain amount to help me with room and board, but beyond that, I was on my own. I got scholarships, a part-time job on campus and some student loans. The key was that my parents began teaching me about money before I was 12, and always made clear exactly how much help I would receive. They gave me ample time to prepare my own path. And I am grateful that I know how to manage my own money, rather than cluelessly relying on my parents.
Start planning now for your retirement
A great Forbes piece on retirement planning v. kids’ college points this out:
“Many young parents think linearly,” says Duane Meek, senior vice president for retirement plans at Nationwide Financial Services in Columbus, Ohio. “Get a job, move up, buy a house, start a family,
educate the children–and then think about retirement. But once they’ve
taken care of the kids, there’s not enough time to benefit from the
compounding of earnings over 30 or more years.”
This means that NOW is the time to start retirement planning. You should open a retirement account as soon as you can, and contribute what you can. You can save for your kids’ college after you have taken care of your own future.