海角大神

One of the most common debates I hear about from people such as myself 鈥� twenty- and thirtysomethings with young children at home 鈥� is whether it makes more sense to save adequately for retirement or save adequately for their child鈥檚 college education. Quite often, young career folks (like myself) don鈥檛 have the means to do both, so it becomes a choice. Retirement or college? Today, I鈥檒l look at both sides of this coin that鈥檚 central in my own life.

When I envision my life thirty years from now, one key part of that vision is that my children are financially independent and not relying on me for any of their financial needs. I don鈥檛 want to be in a situation where they鈥檙e still living at home or they鈥檙e relying on regular cash infusions from me when they鈥檙e thirty.

One major avenue to this level of success is earning a college degree, which can directly lead to a much higher level of earning than life without a degree. I can help pay for this degree, but it may come at the expense of saving adequately for retirement.

What are the advantages of college savings when you鈥檙e young? An adequately funded college savings plan, started when a child is young, can grow into a major resource for paying for significant portions of a child鈥檚 college education.

For example, let鈥檚 say you start funding a 529 plan with $250 a month when your child is born. The account returns 8% per year. On their eighteenth birthday, you鈥檒l have $116,844 sitting there waiting for their college education. If you don鈥檛 worry about it until they鈥檙e in junior high, starting at age twelve, they鈥檒l have only $22,888 in savings.

What about your retirement? Many people who make this choice are also making the choice to work later in their lives than the typical 鈥渞etirement鈥� age. They have no qualms with starting their retirement savings in earnest after the kids are out of the house (say, age forty five or fifty) and planning on a retirement that starts much later (say, seventy or seventy-five).

For some people 鈥� especially people who find a great deal of personal value in their work 鈥� this makes a great deal of sense. Take myself, for example 鈥� I pretty much never want to be idle until I literally am unable to do anything at all. I鈥檓 just not wired that way.

What if I change my mind? If you鈥檙e using a 529 savings plan to save for college, you can withdraw the money from the account as you wish. You will have to pay taxes on the gains plus a 10% additional penalty for misusing the account.

However, if you wish to use that money for educational purposes for someone else 鈥� say, yourself or a child鈥檚 sibling 鈥� you can change the beneficiary without a penalty as long as the new beneficiary is a close family member.

I don鈥檛 want to burden my children in my dotage. If you find yourself needing their assistance in your old age, you will have given them a tremendously strong platform from which to help you if they so choose. The financial advantage you gave to them by ensuring that they were not burdened by student loans puts them in a much stronger financial position in adulthood, one in which they can afford to help you if you need it.

What if I reach my retirement age and don鈥檛 have adequate savings because of this choice? You鈥檙e finally pushed out the door, but you don鈥檛 have enough money to make ends meet. What happens then?

To put it bluntly, you鈥檒l have to find a source of additional income. It鈥檚 important to recognize, however, that reaching this point without adequate money isn鈥檛 necessarily a disaster. Most people in this situation 鈥� having chosen to help their children instead of saving for themselves 鈥� do have a myriad of options available to them when they reach old age.

This might come from finding another job. It might come from financial support from your children. It might come from goverment support. It might come from something as simple as being the daycare provider for your grandchildren. If you choose this route, there will be options available to you at this point. It does not have to be devoid of options if you鈥檙e willing to step up and take action.

Wait a second! You鈥檙e probably wondering what my actual conclusion on this topic is, since I made the opposite argument here. Is it better for the parents of young children to save for retirement first 鈥� or save for education first? As you鈥檝e seen, there is a case to be made for both sides of the coin, but I actually do have an answer 鈥� Click here.

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