Avoid This Costly Financial Mistake

As you reach the home stretch of retirement planning, perhaps in your fifties or early sixties, you will probably feel some relief in knowing that you’re almost to your goal. And then, you face yet another obstacle: Your kids are ready for college or graduate school, and the tuition bill leaves you reeling from sticker shock!

It can be tempting to put your child’s needs ahead of your own; that’s what loving parents have been doing since the beginning of time, after all. But in this case, that instinct can lead you to make a decision you will probably regret in the future. If you’re feeling tempted to borrow money from your retirement fund, take a big step back and consider other options first.

Borrowing from yourself is almost always a huge mistake. Even if you’re able to repay the principal amount that you borrowed from your retirement fund, you can never really make up for lost time. Remember, your fund isn’t just a static amount of money that you set aside to enjoy later; its growth depends upon compounding interest over time. And time is something you can never repay, once lost.

Luckily, there are other ways to pay for college, that won’t force you to sacrifice your retirement goals. Call the school’s financial aid department, and investigate all of your options. You might be believe that you make too much money to qualify for federal grants, but other options are available, such as subsidized loans, work-study, and state-funded grants and scholarships.

Also, reapply for financial aid each year that your child is in school. If another child (or even your spouse) is also attending college, you might become eligible for more aid. Rules for various programs can change sometimes, too.

Loans should be a last-resort option, and in most cases it is better to allow your child to take on that debt themselves. They have their entire career ahead of them to pay off the debt, whereas you only have a few years left before you retire. Of course, that doesn’t mean you shouldn’t help them avoid debt as much as possible, and counsel them on responsible borrowing. Those are both still good ideas.

If you’ve investigated all of your options and still feel stumped, give us a call. We can help you decide how to rearrange your financial priorities, so that you can help your child and still accomplish your retirement planning goals.