Wealth in our Woods Column: The best gift you can give your children

By Kyle Green, CFP®, Sherwood Wealth Management

SHERWOOD, Ore. — There are generally two perspectives on paying for a child's post-secondary education.

If your parents paid for your education, you want to do the same. If your parents didn't pay, you may feel that your children should make their own way. Of course, there are exceptions. I've worked with clients whose parents simply didn't have the means to help, and now they are in a position to provide an opportunity they never had.

For this article, let's assume you want to help pay for your child's education. The first question, though, shouldn't be, "How do I pay for my child's education?" It should first be, "Can I afford to?"

The problem is that this often isn't a question at all. It's a statement: I want to pay for my child's education. Some parents begin saving for college long before they've given much thought to their own retirement. To me, that comes from an honorable place. Parents want to take care of their children, and most parents would gladly sacrifice for them. But have you considered that paying for your child's education could actually be to their detriment? That's what we want to avoid.

We've all heard the safety instructions on an airplane: put your own oxygen mask on before helping others. The same principle applies here. It doesn't mean your retirement has to be fully funded before you save a dollar for college. It simply means you should be on track to meet your own retirement goals before diverting significant savings elsewhere.

The challenge is that many people underestimate what retirement will actually cost. If your parents retired comfortably with $2 million, you may need substantially more by the time you retire. Inflation alone changes the math, and everyone's retirement looks different. There isn't a universal retirement number, but there is one common mistake: assuming retirement will cost less than it actually will.

There are loans for college. There are no loans for retirement. Student loans are far from ideal, and I certainly wouldn't encourage borrowing more than necessary. But they are one of several tools available. If loans are necessary, federal student loans generally provide more borrower protections than private loans. I'll save that discussion for another article.

Your children also have something you don't.

Time.

They may have forty years to recover from student loans. You may not have forty years to recover from an underfunded retirement. In all my years as a financial planner, I have yet to hear someone tell me they regretted saving too much for retirement. I have, however, heard plenty of people wish they had saved more.

When retirees run out of money, someone usually ends up carrying that burden. More often than not, it's their children. Ask yourself which burden you'd rather leave them with: making student loan payments for a few years or worrying about how to help pay for your care later in life.

Helping your children doesn't have to mean paying for everything. Contributing what you can still makes a tremendous difference. Encouraging them to share in the responsibility can be one of the most valuable financial lessons they learn.

If you can comfortably afford both your retirement and your children's education, that's wonderful. But if you have to choose one, for your children's sake, choose your retirement.

The greatest financial gift you can give your children isn't allowing them to graduate debt-free. It's giving them the freedom to build their own lives without wondering how they're going to support yours. Secure your mask first.