Back to school: How parents can approach tuition & retirement

Parents planning for retirement while seeing their growing children off to college have a unique financial road ahead of them. Retirement and college are costly endeavors, and it’s ideal to have a bundle saved up for both. But is that even possible?

Your clients may approach you with questions about helping their kids pay for higher learning while ensuring their own financial stability throughout retirement. Depending on their circumstances, they may not have to choose between one or the other. How can they approach tuition and retirement?

Don’t sacrifice retirement

Start with an important foundation for your clients: Don’t wipe out retirement savings to pay for college.

It may be tempting for them to seemingly get ahead of perennially rising college costs by going all in on tuition upfront, but there’s a certain reality to keep in mind. Between helping pay for college or saving for retirement, the latter choice is likely the more expensive goal to fund.

Prioritizing building a nest egg is a decision that could realistically serve your clients best in the long run. The tradeoff for clients who send retirement funds off to college with children or grandchildren could be having to work well into their seventies (or even eighties) to afford living — an unattractive option to most people.

However, it doesn’t have to be all or nothing. A strategy to set up a secure retirement can also include helping out with college costs.

Paying for tuition

Students can fund their education in a number of ways, including working part-time while in college to pay for a portion of their tuition. Scholarships, student loans, and designating personal savings accounts to pay for college costs are common, as are government-created 529 plans and Coverdell Education Savings Accounts (ESAs). Parents and their children can use a mix of some or all of these options to pay for college — without the potential financial vulnerabilities that may come from sacrificing retirement funds.

Paying for retirement

Numerous avenues exist for your clients to pay for retirement, though prioritizing saving can be tricky, since the money is earmarked for future use and enjoyment. Whereas a student’s college career happens over the course of several years relatively early in their lives and is typically paid off over time afterward, retirement finances are put away now in the hopes of funding the distant future. It’s not always easy to think that far ahead.

This isn’t an exhaustive list of ways your clients can finance their retirement, but to refresh, some of their options can include:

• Employer-sponsored 401(k)
• Personal savings accounts
• Stock market investments
• Annuities

Social Security benefits also play a role, but they generally only provide a portion of pre-retirement earnings. Your clients can’t count on Social Security alone to send them through their golden years comfortably.

Saving for retirement and college

With careful planning, it’s possible for parents to help pay for their children’s education while making sure they have enough for themselves when they finally retire, too. The key here is planning. College and retirement aren’t “fly by the seat of your pants” territory.

Questions you can ask your clients include:

• Are you currently participating in your employer’s 401(k) or similar retirement plan?
• Do you have a nest egg already in progress?
• Have you considered other options to fund your retirement, like annuities?
• At what age(s) do you plan to retire?
• How many years until your children go to college?
• Will your children be working while in college?
• Are there any major financial gifts to your children from other relatives in the pipeline?
• Do you and your children already have schools in mind and know the associated costs?
• Is community college an option to leverage lower tuition fees?
• Have you considered or begun the process of applying for financial aid?
• Have you explored your children’s eligibility for scholarships and grants?
• Do you have a backup plan for paying tuition if your financial situation changes unexpectedly?

That’s just a start, but don’t be afraid to respectfully dig into the details. Talk to your clients about where they are financially and what plans they have for their children’s education. This isn’t a time for sugarcoating. Be honest, because they’ll need to see and understand the numbers to make informed decisions. Planning for changes and volatility

Given that the only constant in the universe is change, you may need to prepare your clients for some rough waters, no matter their strategy for tackling tuition and retirement expenses. These are particularly volatile times, so the markets may continue to fluctuate, and student loans remain a hot-button political issue. These factors may make it the right time to start talking with clients about introducing risk control options into their portfolios.