Make no mistake about it. You should save for your own retirement first by max out your Roth IRA (if you qualify) or getting your employer’s match to for your 401-k plan before you save a dime for your children’s college education. I know that it is a hard choice to make because everyone want to give their children a better live than the ones that we lived. But, not saving for your retirement will not only jeopardize your future but your children’s as well.
College Is Expensive. College is expensive but so is retirement. According to SavingForCollege.com, the average public college costs an $18,326 per year and private schools cost $37,390 per year on average. Financial planners, such as Dave Ramsey, estimate that you need to save approximately 15% of your income for retirement to ensure that your nest egg will have the greatest chance to outlive you in retirement. So, for example, if you make $50,000 a year, you should be trying to save $7,500 for retirement. You can save up to $5,000 per year in a Roth IRA (some restrictions apply), and your investment, capital gains, dividends, and interest can grow tax free even after your withdraw it in retirement. I’m a big fan of Roth IRAs over 401-k plans if you do not have a company matching plan.
You Cannot Borrow For Retirement. Lets face it. While it is no one’s preferred course of action, college students can receive loans for the cost of their education. The average college student graduates with a Bachelor’s Degree and an average of $23,186 in student loans. No bank will ever loan you money to enable you to retire. Think about it. No one is going to give you money to quit your job and go play golf everyday at the country club. That one fact alone should motivate you to stash money in your retirement accounts before you tackle the problem of funding college for your kids.
Do Not Rely On Children In Golden Years. I love my children, but I do not want them to have to take care of me financially during my retirement. My Golden Years are their prime years when they should be starting their own families and investing for their own retirements. They should not be burdened by helping me in retirement because I did not plan properly. As greedy and selfish as it sounds, you must take care of your own retirement needs by fully funding your retirement accounts and investments early in your children’s lives before you save for their educations.
There Are Other Options. Children can work throughout college. There is no hard and fast rule that says that parents have to pay every dime of the cost for our children’s college degree. It would be nice, but it is not practical. And, it should not bother you if you do not save 100% of the cost of their college tuition, room, and board. There are also a plethora of scholarships and grants available to students lately that can be tapped into to help defray the cost of college.
How should you prioritize saving for your children’s college education and funding your own retirement? The prioritization is a very personal thing. Typically retirement comes first and education is a close second. It is a hard choice to make, without a doubt, but these are the choices that will make a very big difference in not only your life but your children’s for years to come.