“Should I borrow from my retirement savings to help pay my children’s college tuition?” It’s a question posed often to financial planners. And their response is a consistent, “No.” There are many reasons why. The older you are, the more difficult it is to replace the money you have saved, especially in an era of layoffs and job uncertainty. And, there is no way to make up for the power of compound interest on your savings, which Albert Einstein called “the eighth wonder of the world.”
Still, that doesn’t make it the right way to do it.
Reginald and Kim Rich, aged 57 and 55, of Bowie, Maryland, put three sons and a daughter through private schools and then college with a combination of luck, scholarships, and loans. He is a recently retired firefighter and EMT. She is a nurse, and is several years away from retirement.
Though the financial path through college was different for each of their children, Reginald and Kim never once thought about touching their retirement savings. As a result, they have in excess of $400,000 in separate 401(k) savings plans, in addition to Reginald’s pension and non-retirement savings.
“I was always told if you want to be comfortable (in retirement), do not touch it,” Reginald says. “Once we retired, we wanted to still live comfortably,” says Kim.
Their four children range in age from 22 to 36. The youngest, their only daughter, recently graduated from the University of Maryland, meaning all four children are now college graduates.
When Reginald joined the fire department in Alexandria, Virginia, he contributed enough to his 401(k) to get the full employer match.
“A lot of the information I got came from the advisers at the fire department. They said to put away money. If you can’t put in the max, do something. That’s what got me going,” he says.
Kim’s story is similar. She worked at Kaiser, which had financial advisers talk to staff. She too listened.
The toughest time was when they were paying private school tuition for the two younger children while at the same time paying college tuition for the two older ones. At the time they were earning about $60,000 each, per year.
Their oldest child attended Bowie State University, financed with a partial scholarship and Parent PLUS loans. He graduated 10 years ago and is now a mail carrier and music teacher.
Their second son received a partial athletic scholarship to play basketball at Lee University in Tennessee, but it increased to a full scholarship for his last two years. He is now a scientist doing stem cell research.
“We could not afford it with two in college and two in private schools,” says Kim. “We had to pay the remaining out-of-pocket. And we had to do a Parent PLUS loan.”