If you’re like most families, the question that keeps you up at night is “How am I going to save for retirement and my children’s college education?”
Finding that balance isn’t easy; however, you have to remember: You can borrow money for college, but you cannot borrow money for retirement.
Postponing saving for retirement means missing out on years of tax-deferred growth and can result in playing a near-impossible game of catch-up. When calculating your retirement funds, remember to include all sources of retirement income, including employer pension plans and Social Security benefits.
As your first step, I suggest you thoroughly examine your needs: Is it more important that you travel when you retire, or that your child attends an Ivy League school? You may have to reprioritize your goals.
If you cannot afford to save for both goals, your second step is to consider compromises like:
working longer or having a stay-at-home parent join the workforce;
Looking for a better-paying job or consider a second job;
Seeking out more aggressive investments—but beware of the risks;
Investigating less expensive colleges or second-tier private college that may offer better programs than expensive, elite colleges, or
Consider your child take out college loans.
Some parents may find it difficult to accept, but the reality is a majority of college students finance a portion of their education with student loans.Two-thirds, or a little more than 65%, of four-year undergraduate students who earned a Bachelor's degree in 2007—2008 borrowed money for school between Stafford, Perkins, state, college and private loans. Six in 10 students believe that it is better to take out loans to pay for school, as they view attending college as an investment in their future.
The third step is to re-evaluate your plan from time to time as your circumstances and priorities change. Remember, the important thing is to earmark a portion of your present income for both goals and do the best you can.
William G. Lako, Jr., CFP®, is a principal at Henssler Financial, and a co-host on Atlanta's longest running, most respected financial talk radio show "Money Talks" airing Sundays at 10 a.m. on Talk 920 AM, WGKA.
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My sister paid for both her kids to go to prestigious colleges. They didn't have to get part-time jobs -- everything was paid for. It took one five years and the other six years to graduate. Both got degrees in their 'passion' without thinking once if they could make a living on it (a degree in jazz studies????).
My kids took out loans and worked part-time the entire time they went to public university. One finished in four years, the other in three. Because they knew they would have to pay back these student loans, they made sure they got degrees in something they had an interest in that would set them up financially to both pay back these loans AND enjoy their 'passions' with the fruits of their labors (meanwhile, nephew 'jazz studies' is back living with my sister...so she wasted all that money on his education AND now has to support him too).
As a parent, I go out of my way to make sure my kids every opportunity to succeed. What lesson am I teaching them if I save for their college and neglect my retirement. Surely, they would rather pay back student loans than have to help out their parents when they are starting their career!