Save for retirement -- or pay for children's college?

More older Americans are facing a tough decision our parents and grandparents didn't have to consider: save for retirement or help pay for college education expenses. A new study from the LIMRA Secure Retirement Institute finds that pre-retirees (those age 55 to 64) and retirees (age 65 to 74) are carrying unprecedented amounts of student loan debt.

The Secure Retirement Institute found that in 1989, education loans made up 4 percent of installment debt for pre-retirees, but by 2013, this share had grown to 30 percent. In 1989, pre-retirees held an average of $600 in education loans, but by 2013, that amount had increased to nearly $8,000. For retirees, average education loan debt increased from $400 in 1989 to more than $2,300 in 2013.

And it turns out that older Americans are paying for more than just college expenses for their children. The Secure Retirement Institute also found that 16 percent of parents are paying the bill for their adult child's credit card or car loan, while 36 percent are paying for their adult child's cell phone bill.

To state the obvious, for many people, the money they spend on adult children is most likely reducing the amount they'll save for retirement.

These results illustrate a basic human tendency: Most parents want to help their children succeed and be comfortable, and they're willing to make sacrifices for their children, even at their own expense. And for most parents, the high cost of raising children is a cost they're willing to bear.

But when you think about it, are you really helping your adult children in the long run if you short-change your retirement? If you can't support yourself during your later years, you may need to turn to your adult children for financial support or even move in with them.

To help avoid going into your retirement years with less funds than you need to take care of yourself, parents and their adult children should have specific discussions about the best allocation of scare resources for the entire family when it comes to college education expenses, retirement savings and other critical needs.

Clearly, a college education gives most people a boost in their lifetime incomes, so whether or not to attend college shouldn't be an issue for most people (however, not getting a four-year college degree doesn't mean you'll be condemned to poverty). But the key decisions are exactly how much should be spent on a college education vs. the potential for lifelong earnings.

To minimize debt, here are several strategies for earning a college degree at a reasonable cost:

  • Attend a community college for two years, then transfer to a four-year university to obtain a bachelor's degree. The final diploma looks the same and has the same earnings impact compared to attending the university the entire time.
  • Attend a public university instead of a private school.
  • Consider delaying entry into college or university until you know more about what you want out of life.
  • Shop carefully, and compare colleges. What are the total tuition costs, and what are the perceived benefits? Understand the difference between student aid that doesn't need to be repaid, such as grants and work/study programs, and student loans that will add to your debt.

As for paying off your children's car loans, credit card bills and cell phone bills, is doing so really worth jeopardizing your retirement?

Families need to realize that the parents' retirement security and their eventual passing are typically family events with shared implications and responsibilities. So, it's smart to make conscious decisions about the best long-term course of action for all concerned. And while that's easier said than done, it nevertheless should be the goal.

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    Steve Vernon helped large employers design and manage their retirement programs for more than 35 years as a consulting actuary. Now he's a research scholar for the Stanford Center on Longevity, where he helps collect, direct and disseminate research that will improve the financial security of seniors. He's also president of Rest-of-Life Communications, delivers retirement planning workshops and authored Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck and Recession-Proof Your Retirement Years.