Saving for retirement can take a lot of planning and financial responsibility. The rising cost of colleges and the high-interest loans associated with them can also be a significant financial burden for your children. What should be your focus when planning for the future?
When planning for the future, your retirement needs far outweigh the financial burdens of putting your kid through college.
Forgoing your retirement to pay for your children's college education can put you in a financial situation where you cannot meet your financial requirements after leaving the workplace. There are also uncertainties with Social Security, and it may not be available to cover your expenses.
Below we will look at the best financial strategy when it comes time to decide to plan for retirement or to finance yourchildren'ss college funds.
Rising Cost of College
Covering the tuition costs for students entering college is becoming increasingly difficult. The cost of college has risen over 549% since 1999. Whenn adjusted for inflatio,, the average incomes remained steady in the same period. This difference continues to make the cost of college a significant financial burden on the student wishing to attend. Without savings, the entire cost will be placed on the student attending the university.
Pushing your children to attend college and then becoming overburdened with the cost and loans associated with it is considered by many parents to be unfair. They want to be able to help their children financially with their educational expenses and provide them with the best future possible. If it means reducing or not saving for their retirement, it may not be the best financial decision.
Borrowing for College or Retirement
Taking out a loan for college may not be the best way to cover college costs. It can put the student trying to finish their education under a financial burden before they can secure their first job. However, it is a much better option than using retirement savings. There are far more options for education loans than for retirees with a financial burden.
There are far fewer options for retirees in a financial crunch. There are drawbacks to home equity loans and reverse mortgages.
Working until retirement age and not having the ability to enjoy your later years would be a struggle for most in that situation.
No one would want to be forced to take out loans, struggle to support themselves, or have to re-enter the workplace after retirement.
Rising Costs of Living
Social Security recipients are facing severe financial cuts if things do not change with the program. It is currently underfunded and can run out of money as soon as 2035. Cuts of up to 20% of the benefits currently paid out can be implemented shortly. This could leave a lot of retirees relying on this money unable to support themselves financially.
With the rising costs of living, health insurance, and the instability of Social Security funding, your retirement may fall squarely on your shoulders. Fewer and fewer employers are even offering a 401K to their employees in recent times. In short, the cost of living is going up, and external resources are growing thinner each year.
Is it Possible to Save For Both?
The best financial advice would tell you to take care of yourself and your retirement first, but it may be possible to plan and prepare for both depending on your priorities. If you understand the costs of each expense and can compromise, you will be able to accomplish both. You will need to sacrifice some of your retirement or compromise on the education they can receive.
The cost of healthcare alone in retirement may reach upwards of $300,000. That can be more than double the average cost of a four-year college institution. You will need, on average, between 70% to 90% of your pre-income retirement for up to 20 to 30 years. This can vary widely depending on your expenses and assets after retiringg college first may mean making significant financial changes; such as:
- You may need to forgo travel or other retirement plans.
- It also may mean downsizing your housing after retirement or relocating to a different retirement-friendly state.
- You may also miss out on the prime investment times and compounding interest, leaving you with a significantly less amount in your retirement fund when you can leave the workforce.
Stick to Your Priorities
Every parent wants to help their children succeed in whatever they do ishouldn'tou shouldn't sacrifice your retirement to help with the costs associated with college for your offspring. The rising living costs can put you under a financial burden when you are in your golden years. You may need to rely on your children for financial support if you neglect to fund your retirement properly.
Without a financially stable retirement portfolio or a well-funded 401(k), you may have to rely on your now adult children to assist you financially after you have left the workforce or, in a worst-case scenario, be unable to retire and have to continue working.
The way to avoid this financial difficulty would be to fund your retirement before you save the money on an education for your children.
Alternative College Funding Options
If you forgo paying for college, that does not mean children won’t be able to attend or will be overburdened with loans. Financial aid packages are available to them when they decide to attend a university.
Some grants do not need to be repaid. Some colleges have work-study programs and the income from them will cover the cost of college-related expenses.
The college they attend will also play a big part in the cost. In-state tuition can have savings over attending college at an out-of-state university. Also, attending a public school will be a substantial saving over attending a private university. These differences can add up to significant savings and much lower savings and loans needed to cover the cost of attendance.
When deciding to fund your retirement plan or a college savings fund financially, it would make the most sense to plan for retirement first. Retirement will be a much greater financial cost than a college education. Putting retirement second can reduce the amount you can save and limit your options when you can leave the workforce and what you can do when you are retired.
There are also uncertainties with the Social Security system, and the total cost of your retirement may be solely your responsibility.