Kids aren’t cheap. A study by the U.S.D.A. found that it costs a typical middle-income family more than $220,000 to raise a child, up 22% since 1960. And that’s only through age 18. Add in paying for college, and that figure may jump by another $100,000 or so, as tuition costs have skyrocketed in recent decades. It now costs nearly $31,000 per year for your child to attend a for-profit college full-time, $26,600 for a private non-profit and $15,600 for a public school, according to data from the U.S. Education Department.
In spite of these staggering costs nearly half of all parents “insist” on paying for their children’s education, according to a new study by MassMutual. That’s fine — if you’re already saving enough for your own retirement. But that’s often not the case, says Kevin Paasch, an agent in MassMutual’s Virginia Beach office. “A lot of parents prioritize saving for the kids’ college over their retirement,” he says. “This may mean you have to work well into your 70s.”
While there’s no one right answer for how to balance the competing demands of retirement saving and paying for your kids’ college education, Paasch offers this three-step plan as a suggestion:
- Deal with your debts This is one of the biggest things that gets in the way of having enough money to save for big goals like retirement and your kids’ college, he says. Look to see if you can cut down on any of your living expenses to free up money to pay off your debts more quickly.
- Put yourself first Sure, you might feel a little guilty about not handing junior a chunk of change for school, but think of it this way: There is financial aid (scholarships, grants and loans) that your kids can get to help pay for school, but there isn’t financial aid that will pay for your retirement, he says. So put yourself first – get on a solid path towards funding your retirement before you begin pouring a ton of money into your kids’ school.
- Make a strategic plan Don’t start pouring money into your kids’ college fund until you’re sure you’re saving enough for retirement. “A lot of people just assume they’ll need 80% of their current income in retirement,” Paasch says. “There are a lot more variables to saving for retirement than that.” What if tax rates, inflation and interest rates go up? How are you really planning on living in retirement — do you want to travel often, for example? Make sure you’re pretty certain you’ll have enough for yourself to retire on before you start writing checks for junior.
To begin planning for retirement, click on the SmartMoney Retirement Planner here.