As a College Financial Educator, I’ve become familiar with several mistakes that students, and their families, make when paying for college. And one that concerns me is when parents prioritize college over building their own retirement fund.
I get it, parents love their kids. But here’s the thing, there are loans for college, no one’s going to give you a loan for your retirement.
I also get that your kids are headed to college before you’re retiring, but your money needs time to grow. For every 10 years that you hold off investing, you’ll need to double the amount of money that you invest to get the same result. Bottom line you need to start early and if you didn’t start early, you need to catch up.
What’s more, money in retirement accounts, yours or theirs, isn’t part of the FAFSA formula. But money you’re saving for college does go into that formula. While I’m not saying that you shouldn’t save for college, you should do so after you’ve funded your retirement account.
Ninja tip: did you notice that money in the student’s retirement account is also not part of the FAFSA formula? That’s right, if they’re working, they have earned income and can get started on their own retirement account.
Now, I know that some people will think that’s crazy, but you want to understand a few things: 1) the power of compounding and 2) the power of habit. Basically, getting an earlier start is a great idea for two reasons: the first is that there’s more time for the money to compound and that means that the money can earn more money; the other is that when we don’t get an early start it’s very easy to keep putting off getting started.
So instead of focusing on how you can’t fund your retirement until you know that your kids’ college plan is set, focus on being a good role model, and putting yourself in good shape. That way, they’re more likely to follow your lead; plus, you’ll be in a better position to help them later, if you’d like to. You can also encourage them to get started on their own retirement account. That early start might even help them later if they wind up with student debt that they want to focus on paying off.