The importance of clarifying your retirement
As your children prepare to leave the nest, you’ve likely spent time imagining what
your own future holds. Are you going to stay in the same house or move? Will you travel, play
lots of golf, relocate to be near your grown children?
This newfound mental freedom allows you to identify what you want for your retirement in a
more concrete way, which empowers you to be more strategic and intentional with your finances.
After all, moving means a different cost of living, which requires a new budget. Hobbies can
get expensive, and knowing how you want to spend your time allows you to prepare accordingly.
This is also the natural time to seek clarity about your financial progress. Most people will
contribute to some sort of retirement plan and maintain a savings account, and many will fund
a 529—but knowing exactly where you stand at this stage is crucial—because then
you know if you're on track, under-funding, or have the flexibility to adjust your savings
rate.
Whether you want to retire early, travel, relocate, or something else entirely, a clear
financial picture empowers you to plan accordingly.
Aligning Financial priorities: College & Retirement
Balancing the costs of your child’s college education with your own retirement plans
can be tricky—you don’t want to prioritize one at the expense of the other, but
you want confidence that you’re making necessary progress toward these major financial
milestones. That’s why it’s important to understand and accept your personal
priorities.
For some parents, paying for the entirety of their child’s education is incredibly
important. Others want to offer support, but also have goals for their children to become
financially independent during this season. There’s no right or wrong answer, and the
key is to identify your family values and communicate them clearly with your spouse and
kids.
why your retirement goals should be a priority
Whatever your goals, it’s always wise to evaluate the impact on your retirement goals
as you help your kids with their education. Because in many ways, your financially strong
retirement is a blessing to your children. When you’re financially secure, you have
freedom to help your adult children with things like childcare and home-improvement projects;
and when you’ve prepared for more difficult possibilities like long-term medical care,
you give them the freedom to continue life as your child without the worry of your
expenses or living arrangements.
So we recommend resisting the temptation to sacrifice your financially secure retirement in
exchange for your child’s comfort. Of course, that doesn’t mean you can’t
help your kids and have a healthy retirement—just do so strategically.
Here are some pitfalls to avoid when balancing your retirement goals with education
funding:
- Taking on too much debt:Some debt (e.g., student loans) might make sense
for your goals, but unrealistic debt can be problematic. Make sure any debt you take on is
reasonable for you to repay within a relatively short timeframe.
- Withdrawing from retirement accounts: If you have a surplus, this can
work, but it often harms your long-term financial health.
- Making assumptions about the future: Pandemics come, markets crash, and
even the best employees can lose their jobs during cutbacks. That’s why we recommend
saving what you can while you can. That doesn’t mean you have to live in fear or forgo
enjoyment of your success, but don’t fall into the trap of increasing your living
expenses with every pay increase.
Some wiser ways to support your child’s education include:
- Planning early: Building a healthy retirement fund and 529 account early
on can give you greater adaptability if you face financial challenges in the future.
- Investing in property:You might consider buying a condo or house in your
child’s college town. This can provide them a place to stay and generate rental income
later, which can support your retirement.
- Delaying retirement: If you don’t have a surplus to work with,
consider delaying retirement. Adjusting your goal, rather than your budget, gives your
retirement funds more time to grow, and it’s less risky for your financial
security.
When a negative becomes a positive
If your finances aren’t where you want them to be, don’t worry—but
don’t be tempted to ignore the issue. Incrementally increasing your retirement
contributions (e.g., by 1% annually), can make a significant impact without overwhelming your
budget. This gradual increase helps you steadily adjust to the change in your daily cash flow,
and it feels good knowing you’re doing something great for your future—both of
which make it easier to continue this positive habit.
Finding Purpose in Retirement
The happiest retirees are those who plan both financially and mentally for their futures.
Shifting from a child-focused life to one centered on your own interests is a significant
change. Whether you want to volunteer, pursue a lifelong passion, or focus on your health,
finding what brings you joy and purpose is key to a fulfilling retirement.
If you're ready to clarify your retirement goals or need help balancing them with your
child's education plans, we'd love to help! Contact us today to get started.
