Parents are facing a challenging dilemma as they strive to save for their child’s education while also planning for their own retirement. Neglecting retirement savings can lead to financial hardship later in life, but balancing both goals is essential.
While it may seem overwhelming, there are strategies that can help parents effectively manage their resources and make progress towards both goals.
Key takeaways
- 27% adults ages 23 or older currently receive, or have received, ongoing financial assistance from their parents, according to Bankrate’s Financial Independence Survey.
- 59% of Americans are uncomfortable with their level of emergency savings, according to Bankrate’s Emergency Savings Report.
- 36% of U.S. adults had more credit card debt than money saved in an emergency fund or savings account in both 2023 and 2024, according to Bankrate’s Emergency Savings Report.
- To feel rich, the average American feels they need to earn $520,000 a year, an 8 percent increase from $483,000 in 2023, according to Bankrate’s Financial Freedom Survey.
Parents are making sacrifices to help their adult children financially
The rising cost of living, combined with the increasing burden of student loan debt, has made it more difficult for young adults to achieve financial independence. As a result, many are turning to their parents for financial support.
Many parents already provide financial assistance to their adult children. More than 3 in 5 (61 percent) parents/guardians of children age 18 or older are currently sacrificing, or have sacrificed, financially to provide assistance to their adult children, according to Bankrate’s Financial Independence Survey.
So, what have parents sacrificed? According to the survey, parents/guardians of children ages 18 or older most often sacrifice their emergency savings (43 percent) or paying down/off debt (41 percent). However, retirement savings weren’t far behind, at 37 percent. These financial sacrifices can place a significant strain on parents’ finances, especially those nearing retirement age.
Gen X parents (ages 44 to 59) of adult children are more likely than baby boomer parents (ages 60 to 78) of adult children to make, or have made, a financial sacrifice for their children (69 percent compared to 56 percent). When it comes to sacrificing their retirement savings, the pattern persists: 40 percent of Gen Xer parents with adult children say they are or have sacrificed their retirement savings versus 33 percent of baby boomers parents with adult children.
“Parents should prioritize their own retirement savings over saving for their child’s education,” says Greg McBride, Bankrate’s chief financial analyst. “There are a multitude of ways to pay for college … but increasingly we’re responsible for funding our own retirement.”
Parents feel like they need to earn more to be financially stable
Many parents feel like they need to earn significantly more income to meet their financial obligations, including saving for retirement and their children’s education.
According to a Bankrate Financial Freedom Survey, parents with children younger than 18 believe they need to earn at least $215,000 a year to live comfortably. That’s more than three times the median earnings of full-time, year-round workers (about $56,929, according to the Census Bureau).
Just 2 percent of parents with children younger than 18 say they’re already making the annual income they need to feel comfortable, the same survey found. Many parents don’t expect things to get better, either: Nearly 4 in 10 (39 percent) parents with children under the age of 18 don’t think they’ll ever achieve financial security.
The rising cost of living has made it increasingly difficult to maintain financial stability. Prices have soared almost 21 percent since the pandemic, requiring an extra $210 per every $1,000 someone used to spend on the typical consumer basket, according to Bureau of Labor Statistics data. This, coupled with long-term challenges like rising housing costs and college tuition, has put a strain on many people’s finances.
Nearly two-thirds (63 percent) of U.S. adults say inflation is causing them to save less for unexpected expenses, while 45 percent say the same of rising interest rates, as of December 2023, according to Bankrate.
3 tips to help balance retirement and saving for your child’s education
If saving for college is straining your finances, it’s time to reassess your budget and set limits. Helping your kids is admirable, but protecting your savings is equally important.
Creating a financially responsible future for your children is crucial for their success and your peace of mind. By prioritizing retirement savings alongside investing in your child’s education, you can secure a brighter future for both of you. Here are some key strategies to help you achieve this balance:
1. **Don’t neglect retirement savings:** Make sure to prioritize your retirement savings as a foundational step in your financial planning. Consider options like 401(k)s and IRAs to maximize your savings potential and ensure a reliable income stream in your later years.
2. **Start saving early for both goals:** Begin saving early for retirement and education to take advantage of compound interest. Utilize tools like 529 plans for education savings and 401(k)s or Roth IRAs for retirement. Automating contributions to these accounts can make saving effortless and reduce financial stress in the long run.
3. **Engage in open dialogue with your children about college funding:** Open communication with your children about financial goals and limitations can alleviate stress and foster responsibility. Encourage them to explore scholarships, grants, and part-time jobs to help reduce the financial burden. By having transparent conversations, you can avoid surprises and work together towards shared financial goals.
Remember, finding a balance between retirement savings and your child’s education is essential. By creating a solid financial plan, starting early, and being mindful of your spending, you can increase your chances of achieving both goals. The key is to find a sustainable balance that allows you to secure your future while supporting your child’s educational endeavors.