In today’s Office Hours, Eric answers Madeline’s question: “Should I stop contributing to my 401(k) to pay for my daughter’s college now or should I take loans and continue to invest in my retirement?”
This a question many are facing, and there is no one perfect answer. However, retirement is the one thing you cannot borrow for so it’s important to take care of yourself first financially before your children. Eric explains why.
[00:00:00] Eric Brotman: Welcome to Don’t Retire… Graduate!: the podcast that asks you what you want to be when you grow up so you can graduate into retirement with purpose and passion. I’m your host and valedictorian, Eric Brotman. Welcome to Office Hours where we answer listeners’ questions about personal finance, retirement readiness, and more.
We received a question from Madeline who asked, should I stop contributing to my 401k? To pay for my daughter’s college now, or should I take loans and continue to invest in my retirement? Uh, Madeline, that is a question that, uh, so many people are facing, particularly this time of year when college acceptances are, are starting to come out for, for those, uh, potentially rising freshmen and trying to figure out how to do all of these things is especially difficult.
Um, what I would say is, Normally, I advise people that retirement is the only thing you cannot borrow to [00:01:00] accomplish. You can borrow for almost anything in life, but not retirement. So it’s important when you think about it. It’s important to take care of yourself first. Financially and otherwise, and then your children.
And that’s a very hard thing to do. And saying it as a dad, it’s a very hard thing to do. But the reality is, if you don’t save properly for your own retirement and you wind up using that bandwidth to pay for an education for your daughter, um, you will eventually, potentially be a financial burden to her on the backend or have to live with her someday because you haven’t taken care of yourself.
On the other hand, if you continue to fund your own retirement and build your own abundance and your own path to financial independence and there’s a student loan for some or all of the educational expenses, you can absolutely help with that. Um, and ideally partner with your daughter on that, on some level, I know none of us want to saddle our kids with debt and, and student [00:02:00] loans are something that I, I think are an abomination and I’d love to see, uh, us not have to worry about them as much, but in so much as college is still that expensive and you must, uh, have some skin in the game.
I do think it’s better to borrow for school, particularly if it’s subsidized. Uh, it’s better to borrow for school and to continue to fund your retirement. A couple other reasons why this is true. Number one, when you’re funding your 401k, a lot of times there’s an employer match or a profit share or other types of contributions on your behalf.
If you don’t contribute, sometimes that means your employer is not contributing on your behalf, so you’re, you’re literally walking away from some of your income, some of your money. In addition to that, when you get to 59 and a half and you’re eligible to start using your 401k or other qualified monies, you can use some of that to pay towards student loans if they’re still lingering out there, and that’s not a big deal.
On the other hand, if you have no student debt, but your 401k is not [00:03:00] adequate, you might have to work an extra year or two, or five or 10, or never hit financial independence at all. So to me, that is an enormous risk. Um, I and I, I, I feel your pain. I have a, a middle schooler, so I’m not quite ready for college yet.
Uh, but I will tell you as a dad, it is extremely enticing. To want the very best for our kids and to want to, to have them get the best education they can and not to be saddled with debt. Uh, but unfortunately, when you have multiple financial obligations and finite resources, which we all do, it’s important to pick your own retirement first simply because you can’t borrow to do it.
So, Madeline, I I wish you luck. Um, I hope you’re not looking at massive student loans, cuz they are a whole lot to deal with. Um, and so there are, we’ve done full shows on Don’t Retire, graduate about, uh, paying for college and about dealing with, uh, some of the FAFSA and some of the college loan process.
Um, and so check out some of those back episodes. I think [00:04:00] you’ll find them helpful. Uh, and I wish you luck and, uh, I wish your daughter success in school. Um, if you’d like to send us a question, which we might answer in a future episode of Office Hours, post it on our Facebook page, or tweet us at Brotman planning.
I’d like to thank all of you for listening and watching today. We’d love to hear from you, so please send us a message or leave us comments at don’t retire graduate.com or on social media, or leave ratings and reviews on your favorite podcast platform. Those are priceless to us. If you enjoy our show, please don’t keep it a secret.
Share it with friends and family so they can join you on your path to financial independence. Thank you for coming to Office Hours. Be sure to tune in for new content every Thursday. For now, this is your host, Eric Brotman, reminding you don’t retire. Graduate
Narrator: Securities offered through Kestra Investment Services, LLC. (Kestra IS) Member Finra, S I P C. Investment advisory Services offered through Kestra Advisory Services, LLC. (Kestra AS) an affiliate of Kestra IS. Kestra IS or Kestra AS are not affiliated with Brotman Financial or any other entity discussed.
