Many parents reduce retirement savings to pay for kids’ college

Financial adviser Robert Hapanowicz 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 darnedest 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 to work in retirement to help with college expenses.

“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.

“When you invest in a child’s education,” Hapanowicz said, “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.

This story was originally published October 14, 2015 at 10:00 AM with the headline "Many parents reduce retirement savings to pay for kids’ college."