Retirement

Save for Retirement Before You Even Think About the Kids' College Fund

It's easy to borrow for college. It's not so easy to borrow for the decades after your working life.

Do your kids a favor and focus on retirement savings.

Photographer: Jamie Grill/Getty Images

Every year, investment firm T. Rowe Price does an annual survey called “Parents, Kids and Money.” This year, the report offered some disturbing news: Parents of all boys were more likely to be saving for college than parents of all girls. This kind of antediluvian attitude is alarming in this day and age, and Forbes properly highlighted it. But buried in that survey I found other alarming factoids: More families have college savings than retirement savings, and over two-thirds of families said they prioritized saving for college over retirement.

If this describes you, it’s time to rethink your priorities. Saving for retirement is a necessity. Saving for college is something optional that you do after you make sure you’ll have food and shelter in your old age.

It seems obligatory to mention that I do not have children. Some readers who do have children will tell me that I just don't understand, as parents do, that their kids come first -- that having brought this life into the world, they are responsible for giving it the best possible start. (Or at least a start commensurate with those of your peers' children. Keeping up with the Joneses is expensive.)

Actually, I do understand that. And I applaud you parents for everything you’ve given up to keep your children happy, healthy and safe: the mornings you staggered blearily into the office because little Esme spent the night projectile vomiting; the would-be date nights when you stayed home because you couldn’t find a babysitter for young Silas; the vacations you didn’t take; the things you couldn’t buy; the hour upon hour you have spent shuttling them from school to activities to nutritious filling meals, even though you would much rather have collapsed onto the couch with a bag of Cheetos. You are heroes, parents, every one.

What I’m saying is, when you did all that, you did your job. Now you need to take a little time to focus on you.

After all, when you get on a plane, what does the chirpy instructional video tell you? Attend to your own oxygen mask before you turn to your kid. This is not because airlines care less about kids than they do about the passengers with the credit cards. It’s because someone who has passed out from anoxia is not much use to their kid or anyone else. Taking care of yourself is part of being a good parent. If you don’t do it, your kids will have to, and they may not be up to the job.

This is simply common sense. But the evidence suggests that this bit of common sense is eluding a lot of parents.

The T. Rowe Price survey is, of course, just one data point -- but it mirrors conversations I have had over and over in my years of writing about personal finance. “We’ll save for retirement as soon as the kids are out of college,” says someone whose last kid will graduate when they are 57. Or “I’m just not going to be able to retire,” they say with a shrug. “I’ll have to work until I die, but at least the kids will be started off right.”

This is magical thinking. Fifty-seven is a good age to start planning what you will do in your retirement, but it is a terrible age to start saving for it. You have almost no time for the money to grow, which means that to enjoy a decent standard of living over a 20-year retirement, you would effectively need to be saving more than your salary each and every year. This is not a viable plan.

Nor can you count on being able to work until you drop in the harness. It’s a splendid idea if you can manage it -- but a lot of people can’t manage it. They get sick. Or their company makes them redundant, and they can’t find a new job (age discrimination is terrible, and should be fiercely combated, but it is nonetheless a reality you need to take into account in your own savings plans). Or their spouse gets sick and needs more caretaking than can be accommodated by their career. There are a dozen reasons why you cannot -- let me reiterate cannot -- plan on “working until the age of 75” as your retirement strategy.

For if you do, and it doesn’t work out, what then? Well, let’s hope that you’re not planning to find an ice floe and push yourself out to sea. Nor are you going to find it easy to live on what Social Security will give you. So probably, you’re going to have to ask the kids for help, just at the time when they’re dealing with the financial and emotional struggles of starting their own families.

This is madness. Your kids can get scholarships or borrow for college; you cannot use these means to finance your retirement. You certainly can’t borrow so cheaply, with government-capped interest rates on the loans, and a bevy of repayment plans designed to keep the monthly bill affordable.

Will payments on student loans be a struggle for your kids when they’re starting out? Perhaps. But those loan payments come at a time when one’s financial needs are smallest and lifestyle expectations the lowest. And even my hefty six-figure loan (mostly repaid on a salary that barely cracked the mid five figures, and with no income-based assistance from the government) cost me a lot less per month than supporting an adult or two.

That’s why you need to be saving enough, every year, to provide a comfortable retirement, before you even think about opening a college savings account. There are any number of tools out there to help you figure out how much that is; use them. And don’t cheat by assuming that you’ll sell the house and move somewhere cheaper. (You probably won’t actually want to move to a strange place and start all over making friends at the age of 65, and even if you do, you will probably want something a bit nicer than a one-bedroom apartment with a view of a strip mall.) Or by deciding that your expenses will go down. (Your commuting costs and dry cleaning bills should indeed go down, and by then let’s hope you’ll have paid off the house. Unfortunately, you’ll also find that you want something to do all day, other than stare at the walls, that your medical bills go up and up, and that you have to pay people to do things that you can no longer do for yourself.) Or by assuming an unrealistic rate of return on your investments.

Once your retirement assets are where they should be, given your age, and you are putting away an annual sum designed to keep them increasing at the necessary rate, then you can open up that 529 account for the kids' college and start funneling money in. Until then, focus on giving your children, and yourself, an even more precious gift than debt-free college: not having to worry about what will happen to you in your old age.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Megan McArdle at mmcardle3@bloomberg.net

    To contact the editor responsible for this story:
    Philip Gray at philipgray@bloomberg.net

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