Many parents think they have to do something else to pay for their children’s education. And that “something” is often retirement.
Institute of Actuaries did research The findings of Americans who are saving both for their own retirement and for someone else’s college education (in 93% of cases their children’s education) are alarming. More than half of the respondents (58%) said they retired later than planned, and 41% said they withdrew money from their retirement fund to pay for their relatives’ school fees.
“To cover college tuition, some people are pouring into retirement savings, sometimes risking tax penalties for leaving early,” said R. Dale Hall, managing director of the university. It’s increasing,” he said. Studied at Institute of Actuaries.
The study highlights the difficult reality of American life that both retirement and higher education are very expensive in the United States. Today, the average private college tuition is $39,723. US News & World Report. And while Americans, on average, estimate it will cost them $1.27 million to retire comfortably, that number has been steadily rising over the past three years, according to insurer Northwestern Mutual in the latest year. clarified in the next report. Learning to “plan and proceed”.
The contradiction between these two savings goals is well known to many financial advisors.
“I have customers who have fallen into this predicament,” said founder John Bovard. Incline Wealth Advisors in Cincinnati, Ohio. “They chose to pay for their education and didn’t save as much as they needed to for old age. So they are supposed to work later than most people, which is 70.”
Melissa Cox, Certified Financial Planner Fetterman Investments In Dallas, Texas, customers who fell into this bond also had to contend with a third expense: their own student loans, he said.
“It’s becoming more and more common,” says Cox. “We’re in an interesting time. Families are still paying off student loans, so they can’t save much for college and retirement.”
To balance these various costs, Americans are taking drastic measures. In the association’s survey, 40% of respondents said they took out loans to save for school or retirement, and 16% said they borrowed money from family and friends. Meanwhile, 39% of respondents worked long hours and 26% took on additional work.
And it’s not just the savers themselves who have to suffer. It’s also people they’re saving. In many cases, children and relatives who use that money to attend college have to compromise on some aspect of their education. 40% had to attend a local public school rather than a private or out-of-state school, 35% had to choose her two-year community college. In the more extreme case, 12% had to postpone college altogether.
“The downstream impact is that it will lead to more limited or different options for students,” Hall said. “So both primary and secondary impacts are a concern and we want to find better ways to solve those problems.”
That’s where financial advisors come into play. Wealth managers whose clients face this challenge can guide them to better solutions that do not skimp on retirement or children’s education. Many advisers say the most important point to convey is that college offers more flexible options than retirement options.
“My advice is always to save for your own retirement first,” says Bovard. “We tell them that their children can take out loans for college, but not retirement loans.”
Beyond loans, financial planners can point customers to resources they might not have thought of.
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“It is possible to make higher education affordable,” said CFP of Fort Collins, Colorado, The Motley Fool’s Ascent. “Scholarships and grants are more accessible than ever for students today.”
Of course, it may be difficult for parents who value their children’s future to prioritize their own old age. But the consequences of failing to save for retirement are often more severe than failing to save for college. For example, withdrawing funds from a 401(k) can result in both taxes and penalties, and liquidated assets miss out on years of compounding opportunities.
“At the end of the day, it’s important to keep your goals in sight and pursue efficiency in the long run,” said the pastor. “A common saying on airplanes is, ‘Before you help people around you, secure an oxygen mask first.'”