Love Your Kids, but Be Loyal to Your Retirement

1. Prioritize your long-term goals over short-term needs

With a financial plan in place, you can be confident you’re investing and building your wealth in all the areas you want to be. There’s no reason why you can’t build a retirement account and save for your child’s education at the same time, but it’s important not to lose sight of the big picture. With higher education, you have options like applying for scholarships and grants - you can’t do that for retirement. It’s all on you. And while college may not be something, we all want or choose to do, retirement is inevitable.

Financial expert Chris Hogan sums it up this way, “put the [mask] on yourself first.” This seemingly innocent airline directive symbolizes and illustrates the importance of taking care of yourself first, so you’re able to take care of someone else. As parents, you make countless sacrifices for your children, but prioritizing their wants and needs over your retirement savings is a detriment to them and you. The “mask” isn’t always about money. It’s also about leading by example, connecting with others, and even being healthy. If you spend the bulk of your income earning years on saving for your child's college fund, and not contributing to a retirement account, then there is a myriad of problems that may arise, including underfunding your retirement.

Prioritizing long-term goals (like retirement planning!) is important for a few reasons:

1. Money. The amount of money you’ll need in retirement will far exceed what your children will likely need for college.
2. Timing. Generally, you have an idea of when your children will go to college and how long it may last depending on their field of study. Despite our best planning, retirement may be unpredictable. One recent study revealed, “More than half of all workers age 50 and older lost their long-held jobs because they were laid off or otherwise forced to leave involuntarily” - you may be able to move on to another job, but some are forced to retire earlier than expected.
3. Compounding interest. Ultimately, you want to be saving for your retirement as long as possible. Prioritizing short term needs could be an incredible detriment to your ability to prepare for retirement adequately.

2. Look for options when it comes to funding an education

As the cost of college tuition continues to rise, many younger generations are opting out of traditional 4-year undergraduate degree programs. While college enrollment has increased 28% since 2000, so has enrollment in vocational schools, which are up 60% over the same time period, and can cost three to four times less than a traditional college.

If paying for your children’s college education is a priority for you, one option to consider is investing in a 529 savings plan, also known as a “qualified tuition plan”. The 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. There are two types:

1. The Prepaid Tuition Plan allows the account holder to purchase units or credits at participating colleges and universities at current prices. These plans are not guaranteed by the federal government, and while some state governments who sponsor the programs might guarantee the money paid into it, not all do. If you think it sounds wonky, you’re not alone. While it used to be available in 22 states, that number dropped to nine in 2020.
2. The Education Savings Plan is more common and allows you to save money for post-secondary or K-12 education for a designated beneficiary. You can use this money to pay for tuition as well as other qualified higher education expenses, including room and board, books, and additional related costs. Both can be attractive options, but as they are rife with restrictions, fees, penalties, and small type - so you want to make sure you’ve done your due diligence before investing in either one.

Scholarships, Grants, Affordable College Options, Work-Study

According to Debt.org, an estimated $46 billion in grants and scholarship money is awarded by the U.S. Department of Education and the nation’s colleges and universities every year. In addition, about $3.3 billion in gift aid is awarded by private sources. This means even if you are a parent who wants to pay for your children’s higher education, you don’t necessarily have to foot the bill alone. There is no limit to the number of scholarships you apply for, and you never have to pay them back.

Vocational schools were mentioned earlier, but another more-affordable option is community colleges. About 8.2 million students were enrolled in a community college in 2018-19 who pay, in general, $3,500 in tuition a year versus their four-year college counterparts who could end up paying almost $35,000 per year.

There are also options for work study, a federal aid program for students with financial need that helps them get part-time jobs.

All this to say, there are many ways to attend college and university that can provide you with a solid degree program and not bury you in a lifetime of debt.

Retirement is guaranteed. College isn’t.

The U.S. Bureau of Labor Statistics released a study in 2020 showing that “of the 3.2 million youth ages 16 to 24 who graduated from high school between January and October 2019, 2.1 million (66.2 percent) were enrolled in college in October.” It may not be surprising to learn that in the fall of 2020, in the midst of the Coronavirus pandemic, post-secondary enrollments fell by 2.5 percent, nearly twice the rate of decline from 2019.

3. Encourage Financial Literacy

Among the things people wish they’d learned in high school, topics related to finance and money typically rate fairly high. There are great ways to start teaching your children about money management starting at an early age, and motivating them to understand things like value, budgeting, and investing.

4. Create a clear plan with Estate Planning

Estate planning should be a no-brainer for anyone with a clear financial plan, and especially for those who have children. However, 2020 estimates showed less than 32% of people have one or more estate planning documents (which can include a will, a living trust, or an advanced health care directive).

If something happens to you and you haven’t planned your estate, your assets may be divided in a way that makes sense on paper but not in practicality, resulting in even more frustration and heartache for your spouse and children. As you are considering estate planning, one unique advantage of utilizing a 529 savings plan is that the value is removed from your taxable estate while you retain full control over the account, including the right to ask for the money back at any time.

5. Make them part of the financial conversation

In addition to encouraging your children to become more financially literate, inviting them to be a part of the financial conversation at home is an important step. Many of our first experiences with money and budgeting are done on a family level through celebratory gifts or in the form of an allowance. Once kids start to have an idea of how money works, they may better understand the benefits of saving up for a vacation or why they can’t go out for pizza every night.

If your kids are in college or beginning to think about their post-high school plans, having an open conversation about their future expenses is not uncommon. One of the best ways to help your child as they’re on the brink of major financial decisions is, to be honest. You don’t have to have all the answers but start with the basics: how much money will you be able to contribute, what will it cover, how much is their desired school charging for tuition, and how do they fill in the blanks. Figure out a budget and give them some autonomy on making the best use of the plan, while incurring the least amount of debt.

If your kids have graduated and, due to the Coronavirus pandemic, or societal trends, have migrated back to the family house - it’s important to remember they’re still your children, but they’re not kids. When you’re able to have a transparent conversation about financial expectations, you’re better equipped at handling tough financial situations and preventing fractures within the family.

Get Started Building Your Financial Plan

At Fullerton Financial Planning, our goal is to help you enjoy your retirement with confidence, not worrying about whether or not you have enough money to enjoy it. Taking care of your kids starts with creating a plan for yourself. Sit down with a Fullerton Financial Advisor today to discover if you are on the right track for your retirement goals.

We understand how important your financial future is to you and your family; we also understand how difficult making these plans can be. When you schedule a call with Fullerton Financial Planning, you’ll discover how we can help you balance your portfolio to meet your unique needs.

Don’t leave your financial future to chance. Let us help you create a personalized plan so you can enjoy the retirement you’ve worked so long and hard for.