Parents, You Need to Put Your Retirement Savings First

  • By Jordan Rosenfeld
  • May 02, 2016

It’s natural for many parents to put their children’s needs ahead of their own — especially given our culture’s premium on sacrificing any sense of self in favor of your kids. Hobbies? Out the window. Nights out? How dare you. Unfortunately, this can extend to financial planning, causing parents to fund the ever-growing costs of their kids’ future college educations instead of their own retirement. In fact, every financial planner I talked to for this article has seen this happen with their clients. And every one of these experts recommends you put your own financial future first.

This doesn’t mean you have to sacrifice saving for a child’s college education — it’s simply a matter of planning. Not convinced that you should put yourself first? Here are six reasons to prioritize your future.

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You Can’t Count on Social Security
Even if the Social Security system survives the staggering number of boomers retiring in the next 20 years, nobody can live on Social Security alone these days, says financial advisor Preal Haley says. According to the Government Accountability Office (GAO), recipients of Social Security can count on just $17,000 per year — and that fund will be insolvent by 2034. For the more than half of Americans who plan to rely on Social Security after retirement, this fact should be a wake-up call. Put another way: “If you don’t start [saving] then you may never be able to stop working,” Haley says. “Take a very cold, hard look at the future if you want to save for education and ask: Are you willing to work longer and delay your retirement by the number of years you’ll be saving for your child’s education?”

There Are No Loans for Retirement
If you don’t contribute to a retirement fund, the only money likely waiting for you after retirement age will come from that shrinking pot of Social Security, if there’s any left at all. While there are other options for drawing out cash, such as a reverse mortgage or a home equity loan, racking up more debt is a financially risky move in your later years, says Sally Brandon, vice president of Rebalance-IRA.

And while nobody wants to saddle a child with huge debt (and indeed, there is a student debt crisis in this country), student loans are different than consumer debt, and regular, on-time loan payments help build credit. In addition to loans, there are debt-free financial aid options, such as grants and scholarships, that lower the cost of college.

Retirement Plans Offer Big Tax Breaks (and Other Perks)
When you put money in a tax-deferred retirement plan such as a traditional IRA or a 401(k), you don’t have to pay income tax on that money until the day you cash it out. And some employers offer 401(k) matching, which means they’ll match your contributions up to a certain percent. This is literally free money. Take it.

You Can Teach Your Child to Save for Their Future
No matter what path your child takes — college, working, or anything else — learning to save money for the future is a critical life skill. But despite how important it is to know how to save, financial responsibility is not a subject often taught in school, Brandon says. This one is up to you.

And you have a big opportunity: A 2009 NIH study found that “adolescents may develop a sense of efficacy by observing their parents' achievement.” In other words, saving for your retirement sets a model for your children to do as you do.

It Takes the Future Burden Off Your Child
Beyond modeling good saving behavior, saving for your retirement does your child a huge favor: Should you need extra care or assisted living at some point during retirement, a nest egg means your kids won’t have to bear that heavy financial burden.

It Doesn’t Take Much to Save — and You Can Do Both
If you’re able to save for both retirement and your kid’s college education, streamline the whole thing by going on autopilot. Brandon recommends setting up an automatic savings plan that transfers money monthly from your bank account (or paycheck) to a retirement plan before you ever see it. “If the money is there, a lot of times you spend it,” says Brandon. “But if you build in savings instead of hoping at the end of the year you’re going to have that money left, it adds up.” Aim to put away 10 percent, but at the very least try to meet your 401(k) match limit.

Once you’re set up with a retirement plan, you can do the same with a 529 education plan, which also grows tax deferred. One way to add even more to your 529: Invite family members to contribute to it in lieu of giving birthday or holiday gifts.

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