As financial advisors serving Woodstock, GA and Marietta, GA along with other areas, the decision between saving for college and retirement can be a confusing one for our clients. Below I share some of my story while giving you some direction on which to prioritize.
As a father of 15, 11, and 9-year olds, college weighs heavily on my mind. With college costs increasing by 5-6% per year and the need to also save diligently for my senior years it’s not simple to know how to prioritize these competing investment interests. On one hand, I want to mitigate my kids becoming burdened with student loan debt. On the other, I don’t want to be unprepared for my senior years and being a financial burden to them either. When rising college costs threaten my retirement, what should be my savings priority? Let’s look at some myths and truths explained in a Morningstar article that will us draw a sound conclusion.
Myth: Student loan debt will make it hard to get started in life.
Truth: While debt can be debilitating, it doesn’t have to be. Studies show that most people can manage their school debt without much burden if they keep their payments below 8% of their pretax salary. The web link at the end of this article provides a great calculator to estimate a loan amount that can hold payments at or below 8%.
Myth: If my kids must work part-time (while in school), they won’t do as well in their studies.
Truth: Actually, working part-time while in school could boost your child’s performance. Researchers have found that students who worked 1-15 hours per week had significantly higher grade point averages than those who worked more than 15 hours or who did not work at all.
Myth: Kids who attend Ivy League schools get better jobs and earn more than kids who attend state schools.
Truth: Most of the statistics that cite Ivy League graduates as having higher earnings don’t take into other contributing factors into consideration. Studies show drive and skill are better salary predictors than the school’s name on a person’s degree.
Myth: A four-year college degree is necessary for a successful life.
Truth: While there is a clear correlation between higher education, and increased opportunities, and higher wages, there are plenty of counter examples. Some kids are not excited or motivated by about traditional textbook learning, and can do better working a skilled trade. There’s higher demand for steel and iron workers, plumbers, welders, electricians, auto mechanics, and other skilled trades because comparatively few young people are taking this route. No one will outsource repairs of their home A/C unit to a foreign country.
Bottom line:
Consider a three-legged stool approach for college funding without neglecting your retirement savings: 1. Contributing a portion from your income while they are in college 2. Loans and grants that keep their payments below 8% of their income after graduation. 3. Personal savings – theirs or yours.
Better for them to have a manageable student loan that they can pay when they’re young than you having to depend on them while they have their own family responsibilities because you are not prepared for your retirement.
As Christian Financial advisors serving Woodstock, GA and Marietta, GA, we are anchored with a Biblical worldview, we help Christian executives, business owners, and widows integrate their faith and financial decisions, ensuring their investments and financial choices reflect their values and contribute to both spiritual and family goals. Learn more.
This post is a revised response to “The College Question” by Sarah Newcomb, David Blanchett, and Christine Benz of Morningstar, October 10, 2019. https://www.morningstar.com/features/the-college-question/