Moving in With Your Son Wasn't Your Retirement Plan?
Sarah’s Story
A woman (let’s call her Sarah) worked all her life. She started when she was a mere teenager. Sarah dedicated herself to supporting her son with necessities like food, shelter, clothing, shoes, health insurance, medicine, etc. And not just necessities, but a lot of wants, too- anything to make Gregory smile. Her goal was just to see him happy. So, when Gregory entered his senior year in high school, Sarah had a decision to make.
Gregory had high hopes of attending college out of state. He had been looking forward to the experience for a couple of years with building anticipation as college came closer in view.
Sarah knew she didn’t have the money to fund Gregory’s college. They lived comfortably, but she didn’t really have much left over after she paid all the bills. Still, the last big gift she would probably be able to give Gregory before he would be off on his own, was a college education. She wanted to make good her promise so made the decision to go for it.
She withdrew money from her Individual Retirement Account (IRA). Education for her son was a qualifying reason for early withdrawal, so she was exempt from penalty.
Didn’t Think it Through
Sarah did not consider these things, though:
> She will pay a penalty on any excess money withdrawn and not used for qualifying education expenses.
> The withdrawn money would be counted as income, and she will have to file for taxes on it.
> She’ll lose the benefit of compound interest that could have resulted if she had not withdrawn that money.
> If she had not been intentional and aggressive about her own retirement plan, she may come up short at retirement.
> She may have to work past her intended retirement age. I know people in their 70’s who say they can’t retire.
> If Sarah becomes sick or disabled, continuing to work and invest may not be an option.
> If she has a short fall and is unable to make it up, she may suffer in silence, deciding between food and medicine, or some other unsavory decision.
> Sarah may have to move in her son and daughter-in-law; after all, Gregory isn’t going to kick his mom to the curb after all she’s done for him.
Think it Through, Now
I heard a saying that goes something like this, “85% of the stuff we worry about, never happens.” When I first heard it, I laughed because I know how I am. Sometimes my mind will run the worst-case scenario and I’ll get myself all worked up or nothing. Yes, I believe there’s such a thing as overthinking.
In this case, though, it would have been good for Sarah to consider all her options and consequences and yes- consider the worst-case scenario. Sometimes unavoidable things happen, that place us in humbling situations. That’s life. But sometimes we put ourselves in these situations by not fully thinking things through or consoling ourselves with hopes
that it will work out somehow. Whoever said, hope is not a plan, is right.
Sarah (and you) can’t go back and undo that decision. But you can guard against making the same mistake again. You can also forewarn other moms and dads. You and your daughter-in-law may get along fabulously; but this situation could strain any relationship- even the relationship between your child and his/her spouse. Do you remember how challenging it was when you started off (how little your income was and how much expenses were) on top of hundred other new experiences?
So, talk about these things with your children sooner than later. Talk about different options. Talk about it with other people you know and care about.
Your child may feel like they must resort to student loans. According to Forbes, the US has over 1.6 trillion dollars in student load debt currently. There are millions of people like me who have been paying on student loans for decades and not making much progress? We can talk about how to break free of that, another time. Also, there are thousands of retirees who are still paying on their own student loans or still paying on Parent Signature Loans. The government can garnish up to 25% of your federal benefit check to repay public student loans. Is that a chance you want to take?
Options
Consider these options instead:
> Parents can start putting money away for children now and in so doing, gain the benefit of compound interest on small amounts over many years. If the child is already a teenager, better late than never.
> Children can set aside some of their income as soon as they start working.
> Parents and children can use investment vehicles to leverage compound interest and guard against inflation and taxes.
> Children can apply for grants and scholarships.
> They can do work study or work through college.
> They can start off in community college where general education courses are inexpensive and buy themselves time to save for his final years of college.
> They can go to school part-time and work part time, making it easier to pay for school as they go.
> Young adults may find an internship or apprentice program.
> They may not need to go to college at all if their career choice doesn’t warrant it. Maybe they just need trade school, a certificate program, an internship, or something else. Many people (like myself) spent tens of thousands of dollars for an education and end up in a completely different career path.
Conclusion
Think through your options; or you may want to speak with a licensed financial professional. It’s worth the cost to get it right. If you can afford to pay for your child’s college, you may decide to go for it. If you can’t afford it, don’t do it. Equip them with all the love and information you can to help them be successful. Teach them how money works and that will put them ahead of a lot of college graduates.
Start the conversations early so they aren’t blindsided. They can still have a very bright future. Check out Anthony O’Neal’s book, Debt-Free Degree.
