Is using your retirement to pay for your kids' education wise?

According to a survey by T. Rowe Price Investment Services, most parents seem willing to sacrifice their own financial security to cover children’s school bills.

The costs of education have been increasing far ahead of average inflation as colleges deal with less support from the government, a recovering economy with a smaller pool of potential donors, and poorly performing endowment funds in recent years.

Parents typically use their current income and college savings accounts to pay for their children's college costs. But families who haven’t saved enough prefer dipping into their retirement savings rather than have the kids take on student loans. Although for most people it might feel frustrating when their cash flow forces a choice between one’s own retirement and financial independence or providing the best educational opportunities for one’s children.

What Do The Experts Say?

Financial planning experts say that saving for retirement is more important than kids' college fund. Just like flight safety instructions tell parents to put on their own oxygen mask before assisting their children, a similar rule should apply to money: parents should make saving for their own retirement a priority over paying for their kids’ college education.

Here’s why. Redirecting too much savings toward tuition is shortsighted. There are various options for figuring out college financing, but it’s hard to begin a retirement-savings program after kids are mostly grown. Experts call the trend disturbing. And it can be risky. That's because there are tax penalties and other fees if you withdraw money from these accounts early. There also are restrictions on how quickly you must pay back money you borrow from a retirement plan. Traditional financial planners are generally clear on the matter. First, save for retirement. Then, if you have anything left over, provide for your kids’ education.

This approach is solidly based on accepted theories. You can borrow money for college. You can't borrow money for your retirement. There are opportunities to borrow money for college, but nothing feasible to borrow for retirement. The goal in retirement should be out of debt. If you plan to live on a fixed income, dealing with debt payments is a hassle that would be much better eliminated. Pay off your mortgage before retiring so as much of your limited income as possible can go to you.

Perhaps not surprising, parents of millennials were twice as likely to tap retirement savings to cover college as parents of Generation Xers were. And those millennials appear headed to repeat their parents’ mistake, with 62% of them saying they’d draw from their own retirement savings rather than have their kids assume student debt. If there’s a bright side, it’s that these millennials still have time to change course and reorient their priorities toward their own eventual retirement.

Other Options Available

Financial experts point out that there are other options - like 529 college savings plans - that can be spent tax-free on college education. While it’s not always recommended from an educational perspective, many college graduates would never had succeeded without the ability to work, earning money to help pay for their own education. Your kids can always pay — or at least help pay — their own college bills. For now, student loans are generally good deals. Low interest rates combined with tax incentives are designed to make a good education more affordable for more people.

A balanced approach between retirement and education for children in the family is wise and practical. Having children means making sacrifices. Having children changes your life, and often requires losing a selfish attitude. The idea of financial independence requires saving money rather than spending it on other people, and even if you are fortunate to have enough to do both, any money you save is money you could have provided to others who need the support. For some, the event of having children is the first time that they consider the financial needs of others, even if those “others” are included in the same household.

Parents who want to be the best role models for their children and at the same time want to provide them with many opportunities possible are more likely to put others’ needs ahead of their own. Parents are often willing to sacrifice some of their own comfort to ensure their kids can live a better life. Good advisers want to encourage parents to fight against that instinct.

Building financial independence sets a good example for your children, who might learn not to rely on others for financial assistance. Elena - you can put a link here as well on the words good example back to the article on 7 ways parent hurt kids) Just like in matters beyond the financial, parents have the tough job of finding the balance between providing for their children and providing them opportunities to grow into independent adults.