Any good parent wants to do whatever they can to help their kids, but sometimes well-intentioned moms and dads might be setting themselves up for financial failure in the process.
More than half of parents say they're saving money to help their children pay for college, a survey from T. Rowe Price found. However, when asked about their financial priorities, 53% of parents said helping their kids pay for college was a bigger priority than saving for retirement.
There's nothing wrong with helping your children financially if you can afford it. But if you're sacrificing your own retirement to pay for your kids' college education, it will come back to bite you down the road. Preparing for retirement takes decades of saving consistently, and if you wait until your kids' student loans are paid off to start saving, it will likely be too late to save enough.
How late is too late to start saving for retirement?
While it's never too late to save at least a little for retirement, the longer you wait to get started, the harder you'll have to work to catch up. Retirement planning is playing the long game, and the earlier you start, the easier it is to reach your goals.
Nearly seven in 10 parents said they'd be willing to delay retirement to help their children pay for college, T. Rowe Price found. But depending on how long you wait to begin saving, you may never be able to afford to retire.
Say, for instance, you want to save $750,000 by age 65, but currently you're helping your children pay for college. If you don't start saving for retirement until age 45, you'll need to save over $1,500 per month to reach your goal, assuming you're earning a 7% annual rate of return on your investments. But if you'd started saving at age 30, you'd only need to save around $450 per month.
That's not to say you shouldn't help your children financially. But it shouldn't take priority over your retirement saving. Even if you're willing to delay retirement, you never know what curveballs life will throw at you. Roughly 43% of retirees say they retired earlier than they expected, according to a survey from the Employee Benefit Research Institute, and the most common reasons for early retirement included job loss and health issues. So, if you're expecting to continue to work into your 70s and beyond to be able to help your kids pay for college, being forced into an early retirement could throw a wrench in your plans.
Balancing retirement planning and college expenses
It is possible to both prepare for your retirement and help your kids with college, but it's a balancing act.
First, figure out how much you should be saving for retirement each month. Run your numbers through a retirement calculator to get an estimate of how much you should aim to save by retirement age, as well as what you'll need to save each month to get there. If you can't afford to save that much every month right now, that means you'll either need to save more later or find a way to live on less during retirement.
Once you have an idea of what you should be putting toward your retirement fund, you can determine how much you can afford to help with college. If you're struggling to save for retirement and help with your kids' education, consider the consequences of prioritizing one over the other. Although it's tempting to prioritize your children's college fund, if you put off retirement saving, you could spend your golden years struggling to get by financially.
If you're determined to help your kids pay for college, you may need to trim other areas of your budget so you can still save for retirement. Start by tracking all your expenses, then categorizing them by necessity. You may not need to make drastic cuts to save more money; sometimes just cutting back slightly across multiple areas of your budget can amount to saving hundreds of dollars each month.
Parents are used to making sacrifices for their children, and the majority of them are willing to push their retirement needs to the back burner to help their kids afford a college education. But even if you're helping your children, you're doing yourself a disservice if you're delaying your retirement saving -- especially if you put off saving for decades. By balancing your priorities, you can ensure you're taking care of your kids while still preparing yourself for a financially secure future.