7 Reasons to Prioritize Retirement Over Your Child's Education

Jars of savings
By Joe Udo

If you have children, you most likely wonder whether to prioritize their higher education or your own retirement savings. The average debt load for the class of 2012 was nearly $30,000, and that's a tough way to start out. As a parent, I want to help my kid as much as I can, and I'd hate for him to have debt before he even earns his first regular paycheck. Currently, we are able to save for our retirement and our child's education at the same time, but many parents aren't able to do that. If you can't save for both, here is why saving for retirement should be the first priority for most parents:

Financial aid. There are myriad financial aid options for college students. They can apply for federal student aid, grants and a variety of scholarships. These financial aid packages might not be enough to pay for all costs, but they can help quite a bit.

Stay at home. One option to help reduce the cost of higher education is to stay at home while attending a local university. The tuition is just one cost of attending a university. The dorm, meals, phone and utility bills are a significant portion of the price tag. Living at home might not be as appealing to the kids, but it's a good option if you want to reduce the cost of higher education.

Community college. You can significantly reduce college costs if you attend a community college for two years and then transfer to a prestigious university to finish the degree. Delaying attendance at a higher cost university will give the family two more years to save, and the cost will be much less than going to a 4-year college the whole time. Of course, the student will also be able to stay at home and save on the cost of living as well.

Factor in the cost. The cost of higher education should be factored in when your family explores college options. Ivy League colleges are great, but they cost significantly more than in-state public colleges. If you can't afford to pay the bill, then be realistic and rule it out early. Of course, if your student is exceptional and can get scholarships from those private colleges, then the cost might end up being quite similar to an in-state school.

Work part time. Students can work part time to help pay for their education. Typically, students only attend classes a few hours per day, so they should have some extra time to work. It makes them feel like they have a stake in the game if they help pay for their own education. People rarely appreciate things that are free.

Roth IRA. Saving for retirement in a Roth IRA is very flexible. You can tap your Roth IRA to help pay for college if that's necessary because you can withdraw your contributions at any time without penalty. And the earnings accumulated in the Roth IRA can be used to pay for higher education without being subject to the 10 percent early withdrawal penalty (if you are younger than 59½), but you will have to pay income tax on that portion of the distribution. However, the amount you withdraw from your Roth IRA will be factored into the financial aid calculation.

Student loans. Students can get loans to help pay for college, but you can't get any loans for your retirement. It's tough to start out with debt, but graduates have a lot of time to pay it off. Life can be much more difficult if you don't have much retirement savings when you're older.

As much as you want to help pay for your child's university education, resist the urge to prioritize it over your retirement. If you divert your retirement savings toward your child's higher education costs, then your children might need to supplement your retirement. That can be just as financially draining as a student loan. There are many financing options available when planning for college, and you should consider as many of them as you can.

Joe Udo blogs at Retire By 40 where he writes about passive income, frugal living, retirement investing and the challenges of early retirement. He recently left his corporate job to be a stay at home dad and blogger and is having the time of his life.

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