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The Single Parent’s Dilemma – Save for Retirement or Child’s Education?

Garrett Allen, a single parent of a 16 year-old son has a big decision to make.

"My son will be going to college or a trade school. I’m struggling to figure out what is best in the both the short-term and long-term? Do I save for my retirement and let him take out student loans and hopefully get grants, or do I save for his education and end up working until I drop at some later date?"

Single parents are torn. According to a Allianz’s new, LoveFamilyMoney study, when asked about their motivation for developing and executing a long-term financial plan, 45% of single-parent respondents said "saving for my kids’ education", versus only 26% of other modern families and 39% of traditional families. The study also found that this savings strategy is problematic for these single parents, as more than 75% said that preparing for retirement and their child’s college expenses at the same time causes them some or a great deal of stress.

"A big theme with single parents is family first. They will make sacrifices to help their children get started financially, which may help their children’s financial foundation. But, this focus on children and short-term goals is jeopardizing the single parent’s retirement," says Katie Libbe, Allianz Life vice president of consumer insights.

Allen brings home that sentiment. "You don’t want to let your child start off on his/her own with a massive debt, especially when you consider how useless a college education can be for some people. On the other hand, you do not want to become a financial burden to your child or children at a later date."

Saving for retirement is a challenge for many people. Countless surveys say how far behind Americans are in having enough money to fund their dream retirement. But single parents have the additional complexity of having just one income.

What’s the right thing to do?

"It’s natural for a parent to want to put their kids first and make whatever sacrifices they can for them, but as a financial planner I have to take the uncomfortable position of suggesting that the parent direct more money into their retirement accounts and less into college savings. It would be great to be able to do both, but you have to set priorities," says Scott Stratton, a certified financial planner and founder of the Good Life Wealth Management.

"You are not a bad parent or a selfish person to make saving for retirement a higher priority than college savings," he says.

You are not a bad parent or a selfish person to make saving for retirement a higher priority than college savings

Financial writer David Bakke, a single parent, says for his son’s education his goal is to come up with about half of his college costs. "Although that might sound like I’m doing him a disservice, I truly don’t think so. Trying to pay for his entire education is unrealistic in my opinion, considering the skyrocketing costs of attending a higher education institution. At some point, my kid will know that he will be responsible for paying for part of his own way. Therefore, he’ll be that much more motivated to perform well, whether it’s in his studies or sports," says Bakke who is making saving easier to manage by having his contributions to a 529 college savings plan automated.

Explore options

Your kid can get a scholarship, take out loans, or get a part-time job. Nobody is going to you give a loan or scholarship for retirement.

Truth is, there are ways to make college happen. "My wife is a professor at a private university and when they want a prospective student who has good grades, they will do whatever they can to enable that student to afford to the college that costs $50,000 a year. Some students pay little or nothing to attend," says Stratton.

If your child doesn’t get financial aid, they can start out at a community college or go to a state college to cut down on costs. Furthermore, you can ask that instead of giving your children gifts that they make a donation to their college tuition, says credit and debt expert Harrine Freeman, CEO of H.E. Freeman Enterprises.

Do the math

Take advantage of the many retirement calculators online. Get an estimate of how much you need to retire and how much you will need to save each year to reach that target. "It becomes obvious that you can’t reach those goals without saving consistently," says Stratton.

Because of the power of compounding you just cannot skip making contributions in your 30s and 40s and think you will be able to make it up later in your 50s and 50s. "Those early contributions, the dollars that grow for 20-30 years, form the majority of your portfolio at age 65," says Stratton.

Set priorities

Before you start saving for your child’s college education you should be maximizing your contribution to your retirement accounts.

"You should be contributing at least enough to get the full match from your employer, you’re throwing money away if you don’t. Then, up your contribution by 1% every year at raise time (you won’t miss it), until you reach the maximum," says Coleen Pantalone, a professor at the D’Amore-McKim School of Business at Northeastern University.

The biggest mistake says Pantalone, "Is not starting to think about your financial health now. Even a little money today makes a difference down the road."

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ae   |     |   Comment #1
This is an easy one... your kid needs to pay their own way for their own education... it creates a sense of ownership and accomplishment. It also helps them to focus when it is their own money they are spending... less party... more study....

part time jobs and scholarships etc... will cover education expenses unless you choose expensive options. I know... I paid my own way through state school while working 24 hours a week+ 50+ in the summer.

Why parents feel that they have to pay for college is beyond me.. if you want to but them some furnishings for their apartment etc... pay a little for books etc... great! but otherwise... these are adults... not kids... they ought to own their own responsibilities accordingly.
Anonymous   |     |   Comment #2
Article suggests that it was written by person with an underlying theme that the inflation busting practices at the universities do not need to stop their past continuing to suggest others should pay so that the university business model continues to supports the high salaries, etc. at the universities.   Look what is happening with the football college tv contracts by/for the conferences...greed is, unfortunately, alive and well.  A message needs to be sent to the universities...
Anonymous   |     |   Comment #3
The priority should be: monthly bills, annual bills, contingency savings (new auto, roof, lawnmower, etc.), retirement savings and then, if there's extra cash, an educational savings plan. The truth is college has become a terrible investment for innumerable students and parents. It's great for the profs...
Anonymous   |     |   Comment #5
 A college education should not be under rated.  True to many people pursue the wrong career field and college degree (time and money totally wasted).  However, without a college degree, many doors will be shut.   Personal example:  I worked my way up from the very bottom working for a Fortune 500 company.  I eventually excelled in the engineering department, how ever I hit a road block to any further advancement up the ladder, although I was operating beyond the scope of all the requirements, because I did not have a "college degree".  I must say  though, I was still very happy to continue my career and eventually retire from that company. 
Anonymous   |     |   Comment #6
And that was the old days.  I think most likely not many now would be able to get that far in an engineering department without a degree.  Also it is my working experience that during a layoff period, the ones with the college education would be the last to go.
Anonymous   |     |   Comment #8
Yes, that was back in the old days.  It would be very difficult if not impossible to accomplish that same scenario in todays corporate world.
Anonymous   |     |   Comment #4
Both of us have college degrees including postgraduate degrees. When our children were in high school, they both decided to go to technical (trade) schools, which were very cheap for state residents. They had heard about college degrees resulting in high debt, poor jobs and years of studying subjects they would never use and we're not interested in. At first I questioned their decisions. They could not have been more right. They graduated with no debt, very little impact on our budget, good job options and they both have started to save and
Invest when many kids are just finishing college. Furthermore I find them to be better educated than my generation because of the internet and media. So at least for our family this topic is a nonissue.
Anonymous   |     |   Comment #7
May I suggest it need not be an either/or decision...I recall a few years ago of a person trying to find the "right" college for a child.  The issue was seemingly straight forward...what school needed that student to enroll as well as, if enrolled, into what major?  Thus, research was done to find a match based upon several factors to ascertain what particular schools really wanted!  That was the answer.  Scholarships, grants, etc. were forthcoming!  Finally, selecting that type process results in gaining admission AND then later deciding whether to switch majors (if that was, which was, the/one of the criteria that determined "success").  Soooooooooo, do some research and one can find a niche that is unique for them!
Anonymous   |     |   Comment #9
If you're going to save for a child college education you need to start way before they reach age 16 (it's like trying to start saving for retirement only after you're in your 60s).

The practical thing to do is to make it clear to a child that if they want to go to college it's up to them to make it happen -- but give the reality check by the time they enter high school so they've got the opportunity to spend all 4 year of high school to work towards a scholarship.

These days student loans can hardly ever be discharged in bankruptcy, so college dept should only be accrued if/when there's an actual plan to achieve a degree that nets a decent income (e.g., science, engineering, etc.).  Nobody should be using college to "find themselves" if they have to get a loan to do it.
Anonymous   |     |   Comment #11
And, keep a log or diary for everything the child does (especially in HS) so that that info can be drawn upon at the time applications are submitted in Jr/Sr year.
Anonymous   |     |   Comment #10
Technology is on the verge of transforming the age-old notion of college. Competent students could complete the equivalent of at least two years of general work on their own time at their own pace at home or anywhere else. Show up at a local testing center, pass a rigorous exam and you earn the credit. Why sit in a boring, expensive class if you can do the math, write the report, process the facts? We use ACT exams every year to measure competence and no one from ACT ever asks how you acquired your knowledge!  

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