One of the biggest debates I used to officiate as a financial advisor was parents discussing whether to save for retirement or their children’s education.
When I would discuss this topic, I often pissed off clients and sometimes lost business. It’s not because I didn’t know what I was doing; it was because I was being honest.
Parents would tell me, “my child starts school in five years, but we have 20 years until we retire. Let’s open up that college savings account now.”
Or they would tell me, they could just work longer.
Or they would say they could just take out a second mortgage.
My response was always, “Screw the kids, you’re already behind on retirement; plan for retirement first.
I’ll be the first to tell you, I love my kids – more than anything.
However, I don’t want to spend my golden years sharing a basement with my wife in their unfinished basements. On a side note, if they become millionaires I would take a posh guest house:)
As parents, we become blinded by love and think we need to give them everything. We often forget about ourselves – especially our own retirement. I am just as guilty of that as anyone!
If you are wondering why retirement should come first, let me explain.
1) You Can’t Take a Loan Out for Retirement
Retirement sounds Awesome! It’s also expensive!
Those all you can eat cruises and Bingo nights don’t pay for themselves.
Unfortunately, there are no loans or scholarships to get you through that 20-30 year period of your life. You have to save every single dime you are going to spend; unless you are fortunate enough to have a pension.
However, even pensions aren’t guaranteed. Just ask ex-Ford or GM employees. They got pennies of what they thought they were going to get.
On the other hand, your children can take out loans for college. The same loans you may still be paying on for your education.
2) Retirement is Expensive
Do you know how much you need to retire? If you don’t, then check out this simple calculator on CalcXML. It will give you an idea of how much you need to save.
After you run the calculation, I think the number will surprise you! According to my inputs, I will need about $2.5 million in the bank. (wiping tears away from my face)
If you haven’t started putting away 10% of your income for retirement, then you have no right to start saving for college.
There is just no way to make that money up if you delay retirement because you think you need to save for your children’s education.
3) Your Children Don’t Necessarily Need College
Society has brainwashed us to believe every single person needs a four-year degree to be successful or to make money.
That’s just not the case anymore. A degree doesn’t guarantee your success. Just read this Gizmodo article about why there are 5,000 janitors in the US who have their PhDs.
What’s worse is naive 18-year-old kids are spending $50,000 a year on college to get a degree in social work to max out with an income of $40,000 a year. It’s difficult to pay student loans with that income.
We need to teach our children there are great jobs that don’t require a college education. Mr. Money Mustache created a list of 50 jobs that earn over $50k and don’t require a college degree!
Let your children know it is ok if they don’t want to go to college. Nothing is worse than pausing your retirement savings and to spend $35,000 on college only to have your child drop out two years later.
4) College May be Obsolete Now or in the Near Future
Fifty years ago college was the only path to success. You got your degree, worked at the same company for years, and became middle management.
That was before the invention of the interwebs. Knowledge wasn’t nearly as accessible.
Times are changing rapidly.
Now you can learn almost anything online. There are a number of platforms that make learning much easier and less expensive.
If you have been living under a rock, here are few sites that will help you learn anything from building websites to marketing effectively. Many courses cost less than $100.
The best part is your child doesn’t have to wait until college to learn what interests them. They could enroll in a $100 course to teach them how to build websites and start their own business before they enter their junior year of high school.
It’s insane how accessible information is today. You just have to get off of Facebook once in a while.
5) You May Hurt Everyone
When you prioritize your child’s education over your retirement, you may hurt everyone financially.
Let’s assume you pause retirement savings to save for your child’s education for the next six years. You feel like you are doing the responsible thing, but what happens if you have an unexpected downsizing or you get injured and are forced to retire.
Now you don’t have enough saved and have to turn to your children for help. You could possibly drain them financially and hurt relationships.
This is not something you want to do.
On an airplane, they always say take care of yourself first then others. It is the same concept when planning for retirement over your children’s education.
Your retirement must come first! A good rule of thumb is to make sure you are saving 15% of your income and then start saving your child’s education. This will help ensure happiness for everyone.