By Cyril Tuohy
It’s a tough call — made tougher still by making the wrong decision.
Single parents, so often on tight budgets, say they would rather put aside money for their child’s education before setting funds aside for their own retirement.
Many financial advisors, however, say that’s exactly the wrong call.
Like placing an airplane oxygen mask on yourself before helping others, a parent needs to set aside money for his or her retirement first.
Then, and only then, many advisors say, should parents turn their attention to college funding, which is rapidly becoming the single largest expense in many households.
“While single parents have several options to help pay college expenses – including grants, scholarships and student loans – they’re solely responsible for their own retirement savings,” said Katie Libbe, vice president of consumer insights for Allianz.
Allianz earlier this month published the findings about the financial habits of single parents from its LoveFamilyMoney study.
The study found that when asked about their motivation for developing and executing a long-term financial plan, 45 percent of single-parent respondents identified “saving for my kids’ education” versus only 39 percent for traditional families.
Balancing the needs of retirement and education has never been easy, and in the past 10 years it has become even harder. Employees have been asked to pick up more of the costs of their benefits, and the cost of college continues to climb.
In the case of single parents, who suddenly find themselves with a drop in household income, the financial challenges are compounded.
Single-parent households are on the rise in the U.S., according to a Pew Research Center study on demographic trends published last year.
In 1960, as many as 92 percent of households with children under 18 were headed by two married parents. In 2011, only 67 percent of households with children under 18 were headed by two married parents, the research found.
In addition, the study found nearly 10 percent of households with children under 18 were headed by single fathers in 2011.
Libbe said that depleting retirement nest eggs to fund education “can be dangerous.”
“To avoid sacrificing retirement savings, a good plan may be to explore college saving and borrowing options first, then determine how those tactics fit with their larger savings strategy,” she said.
The Allianz survey also found that 37 percent of single parents agree that they are putting their financial future at risk to take care of their children, and as a result, 49 percent of single parents say they cannot possibly save enough for retirement.
The survey was conducted online by The Futures Company in January 2014, with more than 4,500 panel respondents ages 35-65 with a household income of $50,000 or more.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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