Diverting retirement savings to pay for college

In the face of ever-escalating costs of higher education, people are often forced to shuffle their financial priorities. Here's one telling example: Nearly one-third of Americans are willing to delay their retirement to help their children or grandchildren pay for college, according to research from LIMRA's Secure Retirement Institute.

When LIMRA surveyed nearly 1,000 Americans in July, it found that to help pay for college, 11 percent of respondents have already reduced the amount of money they're saving for retirement, 10 percent have already withdrawn money from their retirement savings to pay for college and 8 percent have already delayed their retirement.

When you include the number of people surveyed who are willing to take these steps in the future, 33 percent would reduce the amount they're saving for retirement, 30 percent would withdraw from their retirement savings to pay for college and 40 percent would delay their retirement.

The study also reported that four in 10 consumers with children or grandchildren feel an obligation to help pay for college, causing an obvious ripple effect in other areas of consumer finances. While it's only natural that parents are willing to help their children and grandchildren get a good start in life, are they really doing their children a favor if they sacrifice their own retirement security and eventually become a burden on their children in their frail years?

These are tough questions that deserve serious thought and attention.

A recent survey by Gallup calls into question the wisdom of incurring a lot of student debt for a college degree. Only 18 percent of recent college grads with $50,000 or more in student debt strongly agreed their education was worth what they paid for, and an equal 18 percent strongly disagreed with that statement.

The results of another Gallup survey are very insightful: When you ask college graduates later in life whether they're engaged with their work or thriving in all aspects of their lives, the answers don't vary whether they went to a prestigious college or not. What matters more is their choice of major, no matter whether they studied at an expensive private school or a less expensive public institution.

Parents and grandparents should give careful thought to what both they and the student are trying to accomplish when choosing an undergraduate college. Plenty of evidence says people who attend a public college for an undergrad degree do just fine in life.

And if they really want to save money, they can attend a community college for the first two years and finish at a four-year public college. The degree they'll earn looks the same as if they had attended the public college for the entire duration.

Some key exceptions apply to this strategy. If your child or grandchild has made a firm decision regarding what school to attend and what major to pursue as a means to succeed in life, then an expensive private college could be justified if it's the very best place to get that degree. Also, a private college may be a good choice if the goal is to earn a professional graduate degree that can lead to a lucrative career.

The bottom line? Be smart shoppers for that college degree to make sure you're getting value for the money. And be very conscious about the best long-term use of all the family's money and resources.

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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.