Inconvenient Youth: An Older Parent's Guide to Financial Survival

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Photographer: Cultura/Getty Images

When Barrow Barre quit her job as a pathologist in New Orleans to raise her newborn twins the 37-year-old told her husband Gregg he’d have to start saving more for their retirement. His response: “Retirement? "I’m going to have to work till I’m dead!”

Barrow is part of a wave of parents having children into their mid-40s. In 2005, the year she gave birth, the mean age of mothers at first birth was about 25. In 2012, as birth rates fell to a new low among women in their early 20s, the birth rate for women between the ages of 35 and 39 rose 2 percent, according to the Centers for Disease Control and Prevention. The birth rate for women aged 40 to 44 has risen by two percent annually since 2000.

The joy of having children is often accompanied by financial anxiety. The life insurance and estate planning challenges, not to mention competing savings needs, are particularly intense for older parents. Should saving for retirement remain the priority? How much of any wiggle room in the budget should be put toward future college costs, or go to increase life insurance coverage? There are no easy answers. But there are guidelines.

Pricey Safety Nets

Perhaps the biggest concern for older parents is that one or both of them will die before the children are old enough to care for themselves. This is especially scary in a one-income household like the Barres. Barrow can’t easily return to the workforce should Gregg pass away or become disabled. “The field of pathology changes very quickly and my skills have atrophied,” she says.

That’s why higher levels of life insurance are so important for older parents, says Lauren Lindsay, a Covington, Louisiana-based certified financial planner who advises Barre. Lindsay advises older parents to extend the lengths of term life policies to cover their children’s college years.

Parents should take a deep breath before reading the following advice from Lindsay, who caters to a wealthy clientele: Raise the level of life insurance coverage to seven times the parents’ salaries, plus enough to pay off any outstanding debts and $250,000 for each child’s future college expenses. “A lot of people think a quarter of million dollars per child is crazy, but you could easily reach that amount if you’re looking at the full range of schools,” she says.

The cost of increasing life insurance coverage will vary tremendously depending on how much coverage you have in place, your state, age, the income that needs to be replaced and, of course and most importantly, your health. In Lindsay 's experience, insurance coverage in the $1.5 million to $2 million zone could range from about $800 annually to several thousand. You can enter variables into this online calculator to get a rough feel for costs.

Of course, all the insurance in the world won’t protect kids if they can’t access the money when you’re gone. So Lindsay also advises older parents to establish what is called a testamentary trust in their wills. It doesn't go into effect unless both parents die. It’s expressly designed to protect children from having to go to probate court to receive their assets -- a potential nightmare for minors. The trust becomes the beneficiary for the estate instead of children who are too young to handle it; a designated trustee manages its financial affairs.

'Burning the College Fund'

When it comes to savings goals, many financial planners stress that saving for retirement trumps saving for your children's college. Retirement money should be sacrosanct. A year at the average private college costs $39,518, according to The College Board, an education advocacy group. “If you look at the effects of paying for the college of two kids out of your retirement assets, it’s like having your own personal financial crisis,” says Deborah Fox, a San Diego, California-based financial planner who specializes in college planning. You probably won't be able to replace that money quickly, and whatever money you do save won't enjoy the power of compounding over decades.

To try and avoid that, Barrow, now 45, set up a 529 plan to save for her children’s education shortly after they were born. She recently upped her monthly contributions to it from $400 to $800, and it’s grown to $42,000. Her goal is to save $77,000 per child by the time they're 15. She knows it’s not enough for private schools, but is hoping her boys will go to state schools for their undergraduate degrees.

Even though she figures her husband Gregg, who is also a pathologist, should be able to work into his 70s, she’s still anxious. “The kids’ college fund is mentioned in our house daily multiple times,” she says. “I’ll say, ‘Hey boys, did you turn out the lights upstairs? Do you know what you’re doing when the lights are kept on? You’re burning your college fund.’”

There are some financial upsides to being an older parent. If you’re fully retired when your children go to college, you likely won’t have much income so their chances of receiving financial aid will be high. Financial aid formulas don’t count retirement assets, says Fox. “They also consider the age of the parent, so even the amount of income that will be counted will be less for an older parent than a younger parent,” she says.

If you withdraw money from your IRA and 401(k), however, that counts as income for aid formulas. If you can, you’re better off living off non-retirement account assets while your kids are going to school. Aid formulas only count 5.64 percent of your non-retirement assets eligible to pay for college, compared to 50 percent of your income, according to Fox.

Even so, it's the lucky parent who has saved enough to retire and play the financial aid game when their kids are in school. “If you have kids later than age 45, you're probably extending your possible retirement date by six to 12 months for every year older than 45 you are when you have them,” says Wes Moss, chief investment strategist of Capital Investment Advisors in Sandy Springs, Georgia.

So if you were 50 when you became a parent, your possible retirement date gets pushed back from 2.5 to 5 years. Parents still working will likely be in their peak earnings years. In contrast to the retiree, that income hurts when it comes to college financial aid.

There is a draconian solution for older parents -- just don’t pay for your kids’ education. One reason for doing this is that students are eligible for low-interest federally subsidized loans while retirees aren’t. Then there’s the argument that having kids pay their own way builds character. “If you pay for your kids’ college, they’re not going to value it as much,” says Brian Frederick, principal of Stillwater Financial Partners in Scottsdale, Arizona.

That was Frederick’s experience. “I was fortunate that I had a lot of scholarships and my parents helped me out a little bit for grad school,” he says. “My wife had to pay for things and take student loans. She valued it a lot more because she paid for it.” Frederick, 38, plans to pay for one-third of the cost of his two young children’s education. Beyond that, they’ll have to borrow and pay the rest themselves. He plans on encouraging them to join the military, both to pay for their education and to get leadership experience at a young age.

Setting up a financial safety net for children isn’t easy or inexpensive for older parents -- or anyone else for that matter. Everything’s a trade-off between concrete current needs and murky future ones. Older parents do have an arguable advantage over their younger counterparts, however, that could help: better decision-making skills.

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