There are plenty of ways you can go wrong with retirement planning. You can wildly underestimate the length of your retirement or spend too quickly once you get there. You could also forget to budget for costly but common expenses.
Among the most devastating retirement mistakes is one that's often overlooked because it's born out of a desire to help others. But it could come back to bite more than just you.
Do you have your financial priorities straight?
Retirement might be decades away for you, but it's likely also the most expensive financial goal you'll ever have. You need all of that time to save. Putting off retirement savings in favor of other, near-term goals just makes your job that much harder once you begin saving. Yet people do it all the time.
A recent Schwab survey found that 21% of participants said they consider paying for their children's education to be an obstacle to retirement savings. But it should be a no-brainer. Retirement has to come first, even if it means sticking your kids with student loans.
I know that sounds selfish, but it's actually not. Think for a moment about what's going to happen if you pay for your children's education and fail to save enough for your retirement. You can live off your nest egg for a while, but eventually, that's going to run out. You might be able to return to work if you're healthy and can find a job, but if not, who's likely going to have to pick up the tab? Your kids.
They might already be stretched thin trying to pay for their monthly bills and save for their own financial goals, which might include a new home, their own retirement, or their children's schooling. But if they have to divert resources to pay for your retirement instead, they might never achieve those goals. They could also be forced to rely upon their kids for help in retirement, perpetuating this vicious cycle.
But if you focus on your retirement savings first, you can reduce the risk of this happening. And that doesn't mean you can't also save for your children's education. It just means if you can't afford to do both, focus on your retirement savings.
Other ways you can help your children with their college expenses
There are several ways you can help your children pay for their education without forking over any cash yourself. First, you can help them locate and apply for scholarships and financial aid programs. If your child already knows what they want to do, you may be able to find scholarships online that are specific to their field.
You can also help them secure a good deal on a student loan. Federal student loans are best if you can get them. They usually have more flexible repayment terms and lower, fixed interest rates.
While there are federal parent student loans, it's best to let your child take out the loan themselves. The loans available to parents usually aren't as affordable as loans given to students. If you have extra cash sitting around and you'd like to help your kids pay back what they owe, you can do so a little at a time. But this way, you won't be on the hook for that debt.
It would be great if we didn't have to choose between our financial goals, but it's a reality for most of us. That's why having a clear list of financial priorities is key. Keep retirement near the top of that list if you want the best chance of enjoying a comfortable future.
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