One common dilemma parents face is deciding what to do with their limited savings. While most parents want to help their kids get a college education, they also want to retire with financial security. In this face-off, Foolish contributor Tim Beyers argues why you need to put your retirement first.
Save for retirement!
Debating whether to fund retirement or education is like asking me which of my kids I love more. No answer is acceptable.
Similarly, only a cold-hearted jerk would forego college savings altogether. But only a moron would fund college before retirement.
A simple truth revealed
Hey, I understand how that sounds. Go ahead and type your hate mail here. When you're done, ponder this question: Should your children fund your retirement and medical care?
If your answer is no, then you really have no choice but to fund retirement first. If your answer is yes, then I have to ask: Why? Both you and your kids can contribute to college funds. Not so with retirement. You're on your own unless the Feds find a way to keep Social Security limping along for a few more decades. (Three, in my case.)
Teach your child to succeed
Nevertheless, for some, the idea of an adult child funding care for a parent sounds reasonable: Parents sacrifice for children when their children are young. Why shouldn't children sacrifice for parents when their parents are old?
Fair point. For my wife and I, it's a matter of principle: We believe that it's our job to teach our kids the basics of life, business, and money management. They'll take it from there and -- hopefully -- reap the emotional and tangible rewards that follow self-made success.
And, yes, that includes funding college.
Pay for performance
Don't take that to mean we'll abandon our children at 18. Hardly. We already have some money saved for their education and we'll continue to save what we can. We're also willing to provide seed money to start a business or a zero-interest loan to get into a house.
But we see college savings as a pool of incentive cash, which can be had if our children excel in school and earn scholarships, which they should be able to do. Roughly $3 billion in scholarship money is awarded each year according to student loan specialist Sallie Mae.
What a burden you might be
But they may also get nothing. If we've saved little for college, our kids could be stuck with many years' worth of student loans. A 2000 survey from the American Council on Education said 65% of graduating seniors had some college debt, with the average clocking in at $16,500.
I'd hate to see any of my kids owe that much when starting out in the workplace, especially given how much we've struggled with debt in recent years. But I'm far more afraid of being a burden when our children are in their 40s.
That's how it could be if we fail to save enough for retirement or buy a good long-term care policy. According to a 2005 study by MetLife, U.S. nursing homes, which today cost an average of $54,900 annually, may charge $190,000 a year by 2030, when I'll be in my 60s. I not the only one who'd rather have his kids pay $16,500 than $190,000, am I?
How to get help
I doubt it. The good news for us is that there's a lot of free help available to parents and students seeking scholarships. Among the best is a free site called FinAid. Find its excellent advice for how to earn scholarship money here. Also check out its recommended FastWeb Scholarship Search, which is a subsidiary of Monster Worldwide
And then, when you're done, get back to saving for retirement and the care you'll need during your final years on the planet. It's the least you can do for your kids.
For the other side of the argument, be sure to look at this article from Foolish contributor Dan Caplinger.
In the latest issue of Motley Fool Green Light that goes live at 4 p.m. today, we bring you all the details on how to invest for college. To access the issue, along with all our back issues, our Money Answers archive, dedicated discussion boards, and advisor blogs, just click here for a 30-day free trial.
Fool contributor Tim Beyers writes weekly articles about personal finance and investing. Have a Foolish money tip? Tell him. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. All of Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy sees you on a beach in Hawaii in 10 years. Care if we join you?
