Should Having Children Change Your Retirement Savings Priorities?

If you have children, chances are you want to help them pay for some portion of their university tuition. Although it might be tempting to focus on building your child’s education fund above your retirement fund, it’s not usually the wisest financial move.

Expert recommendation

According to Paula Pant, contributor with The Balance, prioritizing your child’s college fund over your retirement is a mistake. “Your children are young; they have their entire lives ahead of them to repay their loans and save for their retirement. You . . . do not have this luxury. You have a tight time horizon to prepare for retirement.”

Most financial experts concur that your retirement should come first, no matter how much you feel like you should help your kids pay for higher education. As Ann Carrns, contributor with The New York Times, states, “Shortchanging yourself now to help pay for college can backfire. You [might] be increasing the likelihood that your children will have to support you later in life.”

For example, one individual left a $70,000-per-year job to care for her aging mother for three years. She lost $63,000 in Social Security benefits and $287,000 in salary, which resulted in an overall total loss of $350,000.

Alternative ways to fund your child’s higher education

Another aspect that some parents fail to consider is that your child might not have to take out a lot of school loans to get a university education. For example, they could obtain a scholarship or join the military.

Also, who knows how things will change in the next two decades, as Charles Sizemore, principal of Sizemore Capital and contributor to Forbes, point out. Maybe tax-payer-funded college education will be a reality in the U.S., just like public school education.

Your child could also choose to pursue the more affordable option of getting an accelerated degree online at an accredited university, such as those listed on California Coast University, for instance, has an annual cost of just $4,724 per year, which would translate to a total cost of $18,896 for a four-year degree program.

How to prioritize retirement while contributing to a college fund

So what is the best way to pad your retirement fund while also setting aside some money to help your child pay for college?

First of all, max out your 401(k) or IRA contributions before adding money to your child’s education fund, as Sizemore advises. By investing first in your retirement fund, it’s easier to stay on track with your retirement goals to ensure you can retire comfortably and retain financial independence.

Secondly, consider opening an Educational Savings Account (ESA) or a state 529 plan, as Sizemore also recommends. This will give you a tax-free way to save for your child’s college tuition, while benefiting from accumulated interest associated with these accounts.

Thirdly, aim to follow the “2K rule” recommended by Fidelity Investments, as Tom Anderson, contributor to CNBC, advises. To figure out exactly how much money to set aside each year for your child, simply multiply your child’s age by $2K. This will ensure that you save enough to cover half of the average attendance cost for a four-year public university, if your child decides to go that route.

Use these simple strategies to help maximize your retirement fund while also allocating a reasonable portion of your income to help your child pay for college.


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