To Be or Not to Be....A Burden on Your Children

(With apologies to The Bard)

Whether 'tis nobler for your children to suffer the slings and arrows of their own debts and obligations, or for the parents to take up arms against a sea of troubles like student loans on their behalf now, only to be asking those same children to support them later in life?

Again, let me apologize to Mr. Shakespeare and any of my English-major friends who might be reading this for the liberties I have just taken.

A Parents worst nightmare ... or is it?

When asked whether or not they want to be a financial burden on their children when they retire, I daresay any parent would answer with a swift and slightly outraged "Absolutely not! I'd rather die!" At least that's true of any parents I've ever spoken to.

Yet this scenario is one that many of these same parents are helping to create by not saving adequately for their retirement needs, including their health care. Instead they are attempting to shoulder every expense of raising said children, particularly the costs of their college education.

It is commonly said that college tuition is far and away one of the most expensive things you will face as a parent, right up there with your home. The nuance to that is that when buying a home or even when the kids are in college, the parents are still in their prime working years, with an income, health benefits, etc.  This isn't true for retirement when you have to live on what you've saved for all your expenses, both day-to-day and healthcare. Yes, there is Medicare but there are still premiums, co-pays, and other expenses that Medicare doesn't cover.

According to data from the Empower Institute, a healthy, heterosexual couple aged 65 will need $245,000 in retirement for healthcare expenses alone, not to mention everyday things like food, shelter, utilities, and the like. Contrast that with information from a June 2015 GAO study that says the average American between the age of 55 and 64 has about $104,000 in total retirement savings.

It gets even more interesting (scary?) when the need for nursing home care is considered. Financial advisers would  recommend that Long Term Care Insurance (LTCI) be purchased prior to retirement in order to offset the costs of nursing home care. Yet in 2015, market sales for individual LTCI policies was only 110,000, which is down from sales of 750,000 policies in 2012. So despite being fairly certain that some sort of long term care expense will be incurred, the policies aren't being purchased nearly as often anymore.

That doesn't make it sound too good for the "not being a burden on my kids" scenario does it? If the savings aren't being accumulated and the LTCI isn't being purchased, where will that money and care come from?

What do we do?

While it is true that college graduates generally earn more than their non-college educated peers, that does not mean that mom and dad should sacrifice their retirement savings in order to pay for it. If mom and dad have limited means to begin with, their own retirement savings should be top priority.

The trade-off comes down to a simple fact: the kids can borrow for the costs of college. The same cannot be said for the parents retirement and care expenses.

To be sure, if the parents have the means to both save for a comfortable retirement *and* pay for their children's college education, then by all means feel free. We would all love for our children to start out in life with no debts and a college education behind them. Sadly most parents are not in the income bracket to do that, so that means hard choices must be made. Do mom and dad foot the bill and not contribute to their own retirement for years at a time, or do mom and dad let the kids get student loans to pay for college while mom and dad save?

Will you feel guilty if you don't pay for college now, as if you're some kind of bad parent, or do you pay now and ask those same kids for handouts later on when they're starting a family and trying to save for *their* kids college and their own retirement? Not a comfortable question to ask I admit but that's the reality for many today.

The decision isn't quite that cut and dried; there are many other considerations like 529 plans (if mom and dad can swing that), grants, scholarships, work/study, part-time jobs, etc., that the kids can apply for and use to offset college costs before mom and dad have to kick in. In the end however it can come down to being just that simple; are the kids on their own for college with mom and dad comfortably retired, or do the kids start out ahead but have to help out the folks later on?

There is no one right answer of course. Work with your financial planner to look at the numbers for your situation to help  you decide. They can help you navigate the various options and see what's really feasible for you and your family. "To Be, or Not To Be...A Burden on Your Children" is a valid question; how you answer it is up to you.

Ronnie Colvin