Struggling to figure out how they’ll pay for rising college costs, some parents are willing to dip into their retirement savings and delay retirement but may not realize that in doing so they may be jeopardizing their own financial security.
Some parents may not mind delaying retirement or may believe that using their retirement fund is the best alternative to help their child pay for college. More than half of parents recently surveyed by T.Rowe Price agreed that they’d rather dip into their retirement savings than have their child take out student loans. Parents worry about the long-term impact of student loan debt. Two out of five parents who used student loans to pay for their own college education said their payments have impacted their ability to save for retirement, according to that survey.
As a result, parents may decide to use a portion of their retirement fund for college expenses well before their son or daughter heads to campus. Sallie Mae’s annual report on “How America Saves for College” found that at least 12 percent of parents who are saving for retirement plan to use at least part of that savings to help pay for college. Nearly one-third of parents surveyed by T. Rowe Price admitted to using their 401(k)s—their workplace retirement savings plans—to save for their kid’s college education.
Parents realize that without sufficient savings they may have to retire later. Nearly half of the parents surveyed by T.Rowe Price said they were willing to delay retirement to pay for college.
Unfortunately, parents who are juggling everyday expenses as well as saving for long-term goals may not realize there are ways to strike a balance between saving for college while saving for retirement so that you don’t have to dip into your nest egg to pay for your child’s education.