Do you think saving for your children’s college education takes precedence over saving for your own retirement? If you do, you’re not alone – but you may be making a major mistake, with a big price to pay down the line when you do eventually retire. That’s the conclusion from this insightful article that appeared last fall on the website of Bloomberg News (it also ran in several newspapers around the country including our own Seattle Times). Written by Bloomberg columnist Megan McArdle, the advice in the column is crystal clear, right there in the title: “Save for Retirement Before You Even Think About the Kids’ College Fund.” As McArdle says, “It’s easy to borrow for college. It’s not so easy to borrow for the decades after your working life.” With graduation just past and college plans in the air, we felt it was a good time to bring this issue back for review once again.
In researching her Bloomberg article, McArdle turned to an annual survey put out by investment firm T. Rowe Price called “Parents, Kids and Money.” She noted what she called “an alarming factoid”: more families have college savings plans than retirement savings plans. What’s more, fully two-thirds of responding families told T. Rowe Price that they prioritized saving for college over saving for retirement. “If this describes you,” McArdle writes, “it’s time to rethink your priorities. Saving for retirement is a necessity. Saving for college is something optional that you do after you make sure you’ll have food and shelter in your old age.”
McArdle uses a clever analogy to describe the situation: the oxygen mask warning we hear every time we fly. What does the instructional video always tell you to do? “Attend to your own oxygen mask before you turn to your kid,” says McArdle. “This is not because airlines care less about kids than they do about the passengers with the credit cards. It’s because someone who has passed out from anoxia is not much use to their kid or anyone else.” Her conclusion is spot on, in our view. “Taking care of yourself is part of being a good parent. If you don’t do it, your kids will have to, and they may not be up to the job.” McArdle adds, “This is simply common sense. But the evidence suggests that this bit of common sense is eluding a lot of parents.”
Here at AgingOptions we believe in telling it like it is when it comes to planning for retirement, not sugar-coating the facts, which is why we think McArdle’s Bloomberg piece is important to consider. As she puts it, many of her friends (and many of our radio listeners and seminar guests) seem to think they can start saving for retirement after the kids are out of college. McArdle said she heard this recently from a friend whose youngest child would not be out of college until the friend turned 57. McArdle blasts this type of non-planning as “magical thinking. Fifty-seven is a good age to start planning what you will do in your retirement, but it is a terrible age to start saving for it,” she says. “You have almost no time for the money to grow, which means that to enjoy a decent standard of living over a 20-year retirement, you would effectively need to be saving more than your salary each and every year. This is not a viable plan.”
She also questions the assertion some people make that they’ll just keep on working indefinitely. McArdle writes, “It’s a splendid idea if you can manage it – but a lot of people can’t manage it. They get sick. Or their company makes them redundant, and they can’t find a new job (age discrimination is terrible, and should be fiercely combated, but it is nonetheless a reality you need to take into account in your own savings plans). Or their spouse gets sick and needs more caretaking than can be accommodated by their career. There are a dozen reasons why you cannot – let me reiterate cannot – plan on ‘working until the age of 75’ as your retirement strategy.” Those are some pretty direct and unambiguous words!
Becoming a Burden to Your Kids
The consequences of failing to save for retirement will not only impact you, they’ll also impact your loved ones. While many live on Social Security as their primary – or even only – source of income, those benefits are usually not that generous. “So probably,” says Bloomberg’s McArdle, “you’re going to have to ask the kids for help, just at the time when they’re dealing with the financial and emotional struggles of starting their own families. This is madness.” After all, as she puts it, there are other ways to fund college, but precious few options for funding retirement. “Your kids can get scholarships or borrow for college; you cannot use these means to finance your retirement.” She concludes, “That’s why you need to be saving enough, every year, to provide a comfortable retirement, before you even think about opening a college savings account.”
Comprehensive Planning Required
The Bloomberg article is extremely clear and well-written, and should be shared with your immediate family, ideally in a family conference. That’s a time where you can all come together in a neutral setting – such as our AgingOptions offices – and make certain everyone understands your priorities for the future. Unless you plan now, using the type of comprehensive LifePlanning exclusively offered by AgingOptions, you’ll find yourself in a very tenuous predicament at retirement time, unable to protect your assets or to avoid becoming a burden to those you love. By contrast, a LifePlan takes family communication into account and incorporates housing, financial, medical and legal planning into one well-crafted retirement blueprint. An AgingOptions LifePlan is your key to a fruitful and secure retirement.
Find out more by joining Rajiv Nagaich soon for a free, no-obligation LifePlanning Seminar near you. Click here for all the dates, times and locations, then register online or call our office for assistance. Make sure you have your priorities straight as you prepare for your retirement years! Come be our guest at an AgingOptions LifePlanning Seminar.
(originally reported at www.bloomberg.com)
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