Education is a Choice, Retirement is Not

There are a number of reasons why Americans are unable to retire at the recommended age and much of it has to do with debt.  Dave Ramsey’s 4th baby step has to do with retirement and unfortunately if you are only on baby step 3, you may not be ready to delve into this but if you are close to retirement age you may want to start thinking about your options.

The truth is that many Americans are not ready for retirement.  Some reasons why they aren’t ready:

  • They funded their kid’s education instead of their retirement.
  • They let lifestyle dictate their spending.
  • They believed that Social Security would be enough.
  • They borrowed against their 401(k).
  • They never paid off their existing debt.

The truth is that many Americans never get to the point where they fully fund their retirement because life often gets in the way.  But retirement is inevitable and planning is a necessity.  At some point it is necessary to slow down due to health or age.  Having a plan in place that allows for the necessities and some fun is important.

There are approximately 44.2 million Americans with student loan debt.  Federal student loan debt can no longer be discharged during bankruptcy so many Americans must continue to pay crippling bills at high interest and if they choose not to, they end up hurting their credit history.

Dave Ramsey’s 5th baby step is to put money away for college education.  The truth is that there are many options available to students who do not want to go into debt and take on loans but many aren’t sure how to go about it.  The other truth is that parents are not financially obligated to pay for their child’s education and while it may seem like a necessary expense, it truly isn’t.

Some ideas that should be considered:

  • Community college for the first 2 years. 
  • Attend a state school as opposed to a private college or university.
  • Apply for scholarships – lots of scholarships.
  • Look for companies that offer work/tuition programs
  • Work on the summers and part time during the school year
  • Consider the military or national guard
  • Delay college for a year and save as much money as you can.

When it comes to funding college, it is a choice and needs to be discussed but as a parent, it is important to remember that retirement is going to happen no matter what, where as a child may or may not decide to go to college.  Retirement funding is not a choice.  15% of your income needs to go into a retirement account and this needs to happen as soon as debts are paid in full and an emergency fund has been fully funded.  College funding can happen once a retirement account has been established and a Coverdell (ESA) saving account or a 529 Plan.  Both of these have tax advantages of their own and should be looked into.

When it comes to retirement and education accounts I highly recommend finding a financial planner that is trust worthy and will explain the various account options without speaking down and making it overly complicated.  It is important to make sure the accounts are not losing money or that the planner is making more money than the accounts that have been invested in.

Retirement and education planning can be daunting and overwhelming but knowing the options can really help to make it a less complicated and easy process.