Sparing a loved one from college debt at the expense of your own future is a failing strategy. Here’s a better approach.
As parents and grandparents, we want our offspring to have it easier than we did growing up. So it’s only natural to want to lessen their financial burden when it comes to college. And while you’ve likely heard the advice from most financial advisors that helping your kids or grandkids pay for higher education shouldn’t come at the expense—literally—of saving for your retirement, it’s often easier said than done. Still, it’s important to take to heart. “I always say, you cannot borrow to retire,” says Shelly Eweka, Senior Director, Financial Planning Strategy at TIAA. “There are lots of different ways to cover college costs, but not to pay for retirement.”
How the typical family pays for college
70% of parents used current income
37% used a dedicated college savings fund
14% withdrew from a retirement fund
35% used other savings or investments.
Source: Sallie Mae’s “How America Pays for College 2020” study, conducted by lpsos
Choose a financial planner who’s the right fit for you.
Be realistic about your goals.
Don’t feel guilty about putting your retirement first.
Let your financial plan dictate how much you should save and invest.
Another thing to be mindful of is how your income level will affect your child’s ability to receive financial aid. If your family won’t qualify for much aid, it’ll be on you to make up the difference. “You need to think about what you’re able to cover, and be upfront about that with your children,” says Eweka. Whatever you decide, keep in mind that “it doesn’t have to be all or nothing,” adds Schrader. “You can pay for a portion of the four years, which would help more than paying for none.”