Wow, is this a dilemma or what for many people? The final decision has to be based on prioritizing your goals. This includes looking at your current stage of life, what you can be mostly sure of in the next few months, your view of your retirement, and many other considerations.
Even as the economy begins its slow crawl back, college costs are continuing to rise meaning parents are continuing to fight a tough battle between funding college and funding their own retirements.
In October 2009, the College Board reported the average published price of tuition and fees for in-state students at four-year U.S. public colleges was $7,020 for the 2009-10 school year, up $429 or 6.5 percent higher than a year ago. After adjusting for inflation, the average net price paid for tuition and fees by public four-year college students overall is lower in 2009-10 than it was five years ago, but higher than it was last year. Private four-year colleges saw a smaller increase of 4.4 percent or $1,096, but for a much higher average annual tuition of $26,273 for the school year.
Also in October ‘09, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) reported in October American workers who held 401(k) accounts consistently from 2003 through 2008 suffered a 24.3 percent average drop in their account balance during 2008’s bear market.
Despite these huge challenges, it’s particularly important for parents to make retirement their first priority. That’s right, make retirement your first priority. Your children can always take on loans and search for scholarship and grant funding to tide them over.
Parents can offer help in a better economy, but the momentum lost in saving for retirement is much tougher to replace. There are no loans for retirement. There are no scholarships for retirement. There are no stipends based on your retirement lifestyle. As most of you know, the burden of funding your retirement is on your shoulders, and yours alone.
There are serious financial consequences to breaking into 401 (k) and other tax- advantaged retirement savings, and parents tempted to do so should look for other alternatives. A July 2007 Country Insurance and Financial Services survey found not 25 percent of respondents thought it would cost less than $50,000 to send a child to a four-year college (on average, public schools have already surpassed that number when adding room and board). The same survey found that nearly half believe paying for college is more important than their retirement, which most qualified experts would advise against.
Before you pick between yourself and your child by raiding your retirement accounts, stay tuned to this blog over the next series of posts for tips to help you decide what is in your best interest.