Is college getting in the way of your retirement? Look for new resources at work, leave the Roth IRA alone and scale back the caviar dreams for both goals, financial experts say.
With more people becoming parents at later ages, college bills are hitting home just before traditional retirement age for many families, so navigating both goals becomes trickier. Meanwhile, the debt is piling up: More than one in four retirement-plan savers over 55 was carrying student-loan debt in a recent Fidelity Investments survey of its plan participants.
Some are putting children through school, others are still paying off decades-old loans from their own college days and others are taking on debt to retrain for second careers, said Akhil Nigam, head of Fidelity Labs incubator projects that are testing online college debt tools. The new tools aim to help consumers consolidate old loans and avoid taking on new loans that are too large.
Mercer, an employee benefits consulting firm, recently introduced employee financial "wellness" benefits for client companies, including online student debt consolidation and advice for making loan repayment work with other goals, like retirement saving.
Financial advisers and college-planning specialists have been telling parents to prioritize retirement over college savings, often noting that you can't borrow for retirement the way you can borrow for college.
Like a lot of parents, though, Cindy Richards and Scott Fisher wanted to get their kids through college without saddling themselves or the kids with loans that had to be paid back for decades.
So about six years ago, when their oldest child was 16, the couple scaled way back on retirement savings and socked as much as they could into their existing 529 college savings plans. That child just graduated from college, and their youngest has two more years to go before they'll begin saving aggressively again for retirement, said Richards, 57.
But they also pursued academic scholarships and financial aid grants and relocated from a close-in Chicago suburb to lower-cost Chesterton, Indiana, downsizing their home as the nest emptied. And neither is looking to retire anytime soon.
"I never expected to have a retirement like my parents, where you're working and then at 65, playing golf," said Richards, a journalist who works as a writer and editor for an insurance firm and who produces the website TravelingMom.com.
Even though they compromised some retirement savings for college, their plan works because they've adjusted expectations and are planning to continue working, said Scott Thoma, principal, client needs research for investment firm Edward Jones.
"Making those trade-offs and saving aggressively for one goal while easing up on the other is fine if they're comfortable working longer," said Thoma. "Where people get into trouble is when they get overwhelmed by both goals and just try to muddle through. That's not really a strategy."
Another of Thoma's pet peeves, particularly for couples hitting the college years right before retirement, is the common advice to use Roth IRAs for education, because Roth contributions can be withdrawn penalty-free before retirement age. Clients who do it tend to falsely think they have more money than they actually do because it's serving two goals, he said.
The key is to make a plan based on your own priorities and circumstances, said Betsy Dill, Mercer's U.S. financial wellness leader.
"Ideally people would have a strategy that moves them down the path on all their possible goals, but realistically we're trying to get them to prioritize the goals and get them to take their next, best, step," she said.
