Finance Your Children’s College Education or Save For Retirement?

Laurie Itkin

By Laurie Itkin | Jun 2nd, 2022

Mothers will do almost anything for their children. That includes putting themselves at risk of living in poverty just to make sure their children do not graduate from college with student loan debt.

I get it. This is a very emotional issue. We want the best for our children. But most women do not have enough money to fully fund their retirement account each year as well as cover the cost of one or more child’s college tuition and housing. So a choice has to be made. If we cannot ensure our own financial security as we age, we’ll end up becoming a financial burden on our children – most likely during the time in their lives when they are struggling to send their own children to college.

Saving for College When Children Are Young

For my clients with young children, I often recommend they start funding a 529 Plan to save for college as long as they are also contributing to their workplace retirement account (or a retirement account they established if they are self-employed). But when your child is graduating from high school, and you are just now worrying about how to pay for college, there is no time for money to compound in a 529 account. Frankly, it’s too late.


A Candid Conversation About Student Loan Debt

I believe your child will survive if he or she has to take out student loans. I did and I learned the value of budgeting, frugality, and delayed gratification during the ten years I spent paying off my student loans. But there must be realistic expectations about what your child can earn after graduating from college. Here is a list of the 50 best-paying careers that require only a four-year undergraduate degree.

Penn State University has a very useful website where it shows how much a student’s monthly payment would be for a 10-year loan at a 6% interest rate. As an example, if your daughter borrowed $60,000 at a 6% interest rate, her monthly payments would be $666.12. The school recommends that a graduate allocate 8% of gross annual income for loan repayment to make it a manageable monthly expense. If your daughter borrowed $60,000, the site recommends she secures a job after college that pays at least $100,000 per year. What happens if she has $60,000 in debt but only earns $50,000 per year? She might struggle to pay depending on where in the country she lives and her overall cost of living.

According to the College Board, among those who finished a bachelor’s degree in 2016 with debt, the average amount was $28,400. I was a guest recently on Tammy Johnston’s Financial Fun podcast where we discussed the issue of growing student debt. Tammy expressed her view that unless a student plans to pursue a career that pays enough so he or she can afford to make monthly student loan payments, the student should attend a less-costly vocational school and learn a trade. The growing student loan default rate adds strength to her argument.

For students looking to build up their positive credit score while in school, there are currently a number of credit cards tailored specifically for students to help them do just that. They also provide benefits students are looking for, including cash-back on routine purchases. This can be an excellent way for your children to work on creating a positive financial path for themselves.

Finances (1)

Don’t Steal Money from Your Future Self

Although you may not want your child to be saddled with debt upon graduation, the answer is not for you to take on the college financing burden yourself if your retirement account is worth only tens of thousands of dollars. Assume you have $50,000 in your employer’s 401(k) and you cannot afford to make another contribution from your paycheck for the next 20 years because you took out a loan for your child’s education and you are burdened with monthly payments. If that 401(k) money sits there in mutual funds earning a 7% annual rate of return, in 20 years you will have just over $200,000 saved for retirement. However, if you do not have loans to pay off and are able to contribute $500 per month and your employer contributes $250 per month, over the next 20 years you would have close to $600,000 saved for retirement. [Disclaimer: the 7% annual rate of return is just an example and no guarantee of future returns.]

Here is the bottom line: your child can always get a loan to attend college but nobody is going to offer you a loan to pay for your retirement.

Laurie Itkin

Laurie Itkin

Laurie Itkin is a financial advisor, certified divorce financial analyst (CDFA), and author of the Amazon best-seller, Every Woman Should Know Her Options.


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