Mature Living: Many parents offer their retirement savings to pay for children’s education
Pittsburgh Pittsburgh financial adviser Robert Hapanowicz said his firm has had several clients who put a higher value on their child's education than on their own retirement savings.
"I recall a conversation with a friend/client who had recently been asked by an acquaintance how he justified sending his daughter to a private school when other less expensive options exist," said Hapanowicz, president of Hapanowicz & Associates.
"His answer was: 'I'll just work a little longer if I need to. Investing in my children will be one of the best investments I can make.'"
Parents and grandparents will do the darndest things to make their children and grandchildren happy, even if it means putting their own retirement security in jeopardy to help pay for college.
Nearly one-third of Americans would be willing to defer their retirements to help their children and grandchildren pay for their education, according to research conducted by Limra Secure Retirement Institute, based in Windsor, Conn. The findings are based on a survey of nearly 1,000 Americans in July.
"What we also found in the survey that surprised me even more is that over 40 percent of Americans feel it is the family's responsibility to help pay for college," said Michael Ericson, an analyst and author of the report.
"That is what initially surprised me. But it made sense when we found over one-third of parents and grandparents were willing to delay retirements or work in retirement to help with college expenses," Ericson said.
"One of the things that is worrisome about those findings is that our research finds about half of Americans are not able to work as long as they planned."
As the cost of college has skyrocketed, Ericson said Americans are putting less money aside for retirement, delaying retirement start dates and even carrying debt into retirement, often due to lending financial assistance to younger family members in college.
Hapanowicz noted, "When you invest in a child's education, what you hope for, of course, is a high return in terms of career opportunities and life fulfillment as the child progresses into adulthood. For many, if not most parents, it is hard to put a number on such a result. It is priceless."
He noted the Roth IRA can be a more flexible solution than a 529 savings plan, although the second is specifically set up to help people save for college. Roth contributions, though not tax deductible, can be distributed tax-free and used to pay for college expenses, including expenses not qualified via the 529 plan.
Age appears to be a determining factor in what sacrifices parents and grandparents are willing to make for college-age family members.
The percentage of Americans who say they would be willing to reduce the amount they are saving for retirement to help pay for their children's or grandchildren's educations decreases as people get older.
"There is a generational difference in the people who agreed that family members have a responsibility to help students pay for college," Ericson said. "The younger generations _ Generation Y and Generation X _ are more likely to agree with that statement as opposed to baby boomers and the silent generation.
"The younger generations are more likely to have experienced college and the debt that often goes with it," he said. "They are more likely to want their children to have the same opportunity they had. The older generations are more likely to be retired and on a fixed income, which makes it harder to pay the rising cost of college."