“College or Retirement? Resist the Urge to Sacrifice Your Future”

02 Apr 2015

I know this may come off as mean and unthinkable, but I really think parents need to spend less time worrying about their children’s futures and more on their own. With pensions evaporating before our eyes and many people woefully underfunded for retirement, this should be a cause for alarm. Yet, a new study by T. Rowe Price1 surveyed 2,000 parents in December 2014 and found some interesting results. Rather than have children take out loans to pay for college, 53% said they would prefer to tap into their retirement accounts. Yes, over half! Meanwhile, 49% said they’d be willing to delay retirement so they could pay for their children’s college. It’s natural to want to help, but consider this: our children are already faring better than our parents and grandparents as it is.
On a recent flight to Florida, the airline attendant was going through her routine and she said something that resonated with me. “Please secure YOUR oxygen mask first prior to assisting anyone next to you such as your children.” In other words, take care of yourself first or you will be no good to anyone else. I see this as a good story when I speak with clients about sacrificing retirement to benefit their children. Your children will be fine. You can and should help but NOT at your expense of a successful retirement. Here are some items to consider:

  • Junior college is not as taboo as it used to be and can save thousands of dollars per year in costs. I attended a Junior College for two years (trying to hang on to my sport career a bit) and had every credit transfer (except one: fishing and boat safety…remember I played sports) to my eventual graduating college, University of Northern Iowa. I am a huge fan of the Junior college system. Remember, recruiters will ask where you graduated from not where you started.
  • Kids can and should work during college. My grandmother and parents helped a ton but I still worked I was a Seaman apprentice at Long John Silvers (yes that was my title!). I made a killer hushpuppy as I recall… I also played two sports in college. I was very active and graduated in 5 years with a Finance degree and very little college debt.
  • Interest rates are at historical lows. If there was a good time for kids to borrow money this would be the time.
  • Debt payment can help establish credit history and teach kids to get used to being responsible in paying bills.
  • Start as early as you can putting money aside for college. What they don’t use can go towards your retirement.
  • Children have the benefit of time to assist them. They are young and have many years ahead of them. Retirees on the other hand don’t have the benefit of time. Our children have many chances to get it right– you have one.
  • Children will often inherit much more than our parents did or we will.

Remember that it’s normal to want to help, but this can be done in more ways than sacrificing your retirement. For full disclosure, I have a 5th grader and an 8th grader so I do feel fairly qualified on this topic. Retirement AND college planning can be done together and not at the expense of one another.
Good Luck!

Jeff Johnston, ChFC

Securities offered through Cambridge Investment Research, Inc. a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Premier Investments of Iowa, Inc. are not affiliated.

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Jeffrey Johnston

Jeffrey is originally from Solon, Iowa. He currently resides in Swisher, Iowa with his wife, Prudence, and his three children, Seth, Ian, and Roman. He graduated from the University of Northern Iowa in 1989, where he majored in Finance and Investments. He has 24 years of experience in the investment and estate planning business. He is currently the President of “Premier Investments of Iowa, Inc.” Jeffrey’s main focus is Estate and Investment Planning for Senior Citizens and Pre Retirees. Jeffrey became a Chartered Financial Consultant (ChFC) in 2001. He is the author of many articles on industry related topics and he is a frequent seminar presenter. He is a Board Member TRIAD Linn County Seniors Against Crime, and he is also a past Board Member of the Heritage Area Agency on Aging Task Force. He is a member of CEO Roundtable in Cedar Rapids, a Daybreak Rotary Member, and a member of the Cedar Rapids Estate Planning Council. In March of 2009, Jeffrey became the host of the Premier Investments of Iowa Financial Hour which airs every Tuesday Evening from 6PM -7PM, on WMT 600 AM Radio. In his free time he enjoys golf, fishing, scuba diving, traveling, and coaching son’s basketball teams.