As you go on about life, you need to think about your retirement, not their college. Your retirement is your responsibility. You only get one shot at funding it. Why? Because you won’t be able to work your entire lifetime. Old age, and possibly illness will force you to retire. If you have not saved for your golden years, then you can expect to live a very poor retirement lifestyle. Dave Ramsey has a great saying, something along the lines of “50 ways to fix Alpo.” Think about that. Do you want to end-up eating dog food because that’s all you can afford. Remember counting on Social Security for your retirement will only generate about 40% of your income.
You want to be a good parent and not have your children be burdened by student loans. However, you don’t want to become a burden to them in your old age. They are young and have their whole life ahead of them. So before you take out a home equity loan to help pay for their college or worse yet, mortgage your house again after you’ve paid it off, and before you save for their college and not your retirement, help them look for ways to fund their college. They do not need student loans.
- They should attend their local community college for their first two years. In this way, they get to take care of their basic courses at a much lower cost.
- Have them get a job to pay for their education. They might not be able to attend college right away. Instead, they can work and save their money to pay for education.
- They should attend a state school for their last two years, as opposed to a private college.
- Have them look for grants and scholarships.
- They might consider joining the military. In this way, they will have access to the G.I. Bill to pay for their education.
What happens if you’ve saved money for their college education and your children don’t want to go to college? They might have a skillset that enables them to have a great career without a college education. They might want to go to a trade school instead of college. Having a college degree does not necessarily guarantee a great job or career. Your child might go one or two years to college and then drop out. The money you used to pay for those two years could have increased your retirement account. So please, take care of children by taking care of yourself. If you have money in your retirement account that will allow you to live comfortably, you won’t need their help in your golden years.
Another thing you have to remember is if you wait too long, you can’t play catch-up. For those who haven’t saved much, you have fewer options for financial stability. Therefore, you need to save for yourself first. Taking money to support your child through college, might not leave you with anything left for yourself in retirement.
When you save for retirement, there’s a bigger return on your retirement savings. You have upfront tax savings by contributing to a 401(k) or similar retirement plan. You also have your employer’s matching contribution. This means you could end up with more than you invested. If you invest in a 529 college savings plan, there is no employer matching.
You have more financial flexibility if the nest egg is big. Remember that the law allows you to use your traditional or Roth IRA for higher education without being hit with the 10 percent penalty. While you may be able to use money from your 401(k) to help with the college funding, you have to pay it back as it is a loan.