“If you have kids later than age 45, you’re probably extending your possible retirement date by six to 12 months for every year older than 45 you are when you have them,” says Wes Moss to Bloomberg. When it comes to savings goals, many financial planners stress that saving for retirement trumps saving for your children’s college.
Retirement money should be sacrosanct. A year at the average private college costs $39,518, according to The College Board, an education advocacy group. “If you look at the effects of paying for the college of two kids out of your retirement assets, it’s like having your own personal financial crisis,” says Deborah Fox, a San Diego, California-based financial planner who specializes in college planning. You probably won’t be able to replace that money quickly, and whatever money you do save won’t enjoy the power of compounding over decades.
Setting up a financial safety net for children isn’t easy or inexpensive for older parents — or anyone else for that matter. Everything’s a trade-off between concrete current needs and murky future ones. Older parents do have an arguable advantage over their younger counterparts, however, that could help: better decision-making skills.
There are some financial upsides to being an older parent. If you’re fully retired when your children go to college, you likely won’t have much income so their chances of receiving financial aid will be high. Financial aid formulas don’t count retirement assets, says Fox. “They also consider the age of the parent, so even the amount of income that will be counted will be less for an older parent than a younger parent,” she says.
If you withdraw money from your IRA and 401(k), however, that counts as income for aid formulas. If you can, you’re better off living off non-retirement account assets while your kids are going to school. Aid formulas only count 5.64 percent of your non-retirement assets eligible to pay for college, compared to 50 percent of your income, according to Fox.
So if you were 50 when you became a parent, your possible retirement date gets pushed back from 2.5 to 5 years. Parents still working will likely be in their peak earnings years. In contrast to the retiree, that income hurts when it comes to college financial aid.
Read the full article in its entirety on Bloomberg.