It's easy for parents to put our kid's college savings before our own retirement. We shouldn't; it's a big mistake. A number of top PF celebrities tout this same approach: Suze Orman, Dave Ramsay and Clark Howard to name three.
The reason is simple and has nothing to do with tough love, or anything of the like. It is that there are numerous means to fund college: scholarships, GI Bill, grants, working while in school, and, of course, loans. And I'm sure other ways as well.
The same isn't true with retirement. We can't get a subsidized loan for our retirement. And certainly not academic or athletic scholarships. Not many grants around either I imagine. No, aside from the rare pension, we are largely responsible for funding our own retirement years. And as the older generation is finding out in today's world, if you don't plan well you may find that retirement never comes. Or if it does it is for medical and health reasons.
Some people may figure if they fund their kid's college that they are setting up their kids to be high earners, and that their kids can support them if needed when they retire. But for most, the cost to support our parents in old age would be a massive burden with costs as they are today. It is better to prepare for our own retirement needs so our kids don't have to worry about us.
As a parent, I already made this mistake. The year my twins where born I took a check for $4,000 down to my local Scottrade office and opened up two Coverdell ESA accounts for the maximum $2,000 per kid per year. I felt proud in doing so. And felt confident that I would continue to do so each year afterwards.
Know we still do contribute a little bit throughout the year. And all holiday money they get from relatives goes into these accounts as well. We generally match this so the $5 bill Aunt Nell sends them each ends up being another $10 in their accounts.
But we haven't come close to maxing out their ESA's since that first year. And I don't feel guilty at all. I know that we need to max out our own retirement contributions first. Dave Ramsay recommends not saving a dime for your kid's college until you are saving 15% of your income into retirement accounts. Suze Orman has similar advice.
We probably won't start maxing out the ESA accounts again until our twins are out of day care and into grade school. The $500 a week we spend on day care can be diverted to their ESA accounts and we can fully fund the yearly max in just 2 months.
And the other fact of life about all this is many of our kids won't even go to college. But we all will face a day when we can no longer work, whether voluntary or not. Better to have well padded retirement accounts when that day arrives.
Do you save for your kid's college? What type of savings do you use?
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