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How to balance college for kids versus your retirement

  • Kids can avoid supporting parents tomorrow by paying their own tuition today.
  • Our "shaming culture" for parents can lead to disastrous financial results.
  • Controlling instinctive parental guilt is key.

So your daughter got into Princeton? Thinking about tapping your retirement savings to make it happen? Think again.

Throwing a wrench into your retirement savings plan to put your kids through college may seem like a worthwhile sacrifice, but you — and your children — may regret it later.

"One of the more selfish things you can do is to prioritize your children's education over your own retirement health," said Tim Maurer, a certified financial planner and director of personal finance at Buckingham Strategic Wealth and The BAM Alliance. "Your kids may have to bail you out down the road."

The annual tuition costs of a post-secondary education, according to the College Board, now range from an average of $3,520 at a two-year community college up to $33,480 at a four-year private university. Add in room and board, and the annual cost for the average college student rises to between $11,580 to $45,370.

Couple looking at paperwork
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A four-year degree at the most expensive institutions will cost more than $60,000 a year and, based on cost trends, probably much more in the future. For middle-class American parents who want "the best" for their kids, college can wreak havoc on their retirement plans.

"College costs have risen so much and there's so much uncertainty about where they'll be in the future," said financial advisor Jude Boudreaux, CFP and head of Upperline Financial Planning. "Parents want to help their kids, but they're feeling squeezed."

Many of Boudreaux's clients are what he calls "emerging affluents" — couples with good incomes and children approaching college age. Increasingly, he is having conversations about how those clients can support their kids without hobbling their own retirement savings objectives.

"It's not my place to as a financial advisor to tell them they can't do this," Boudreaux said. "We have conversations that are realistic and practical, and I show them what the financial consequences of their choices are."

Lazetta Braxton, a CFP with a large number of middle-income clients, is also spending more time laying out the options and consequences of family education decisions for her clients. It's usually an emotionally charged situation, and everyone's perspective has to be considered.

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"Everything has to be on the table," said Braxton, founder and CEO of Financial Fountains. That includes the parents who may "want better for their kids than they had, grandparents and other family members who might be enlisted to help with costs, and the children who may be forced into career paths they don't want — in which case, a lot of money can go to waste."

The key, said Braxton, is to control emotions.

"Parents have to determine what they want for their kids and what they're able to provide," she said. "You have to control the parental guilt.

"It's for the health of the generations and families."

Despite the growing importance of these decisions, Maurer at The BAM Alliance sees a disturbing lack of practical consideration of the issues. "I'm not seeing a trend towards better planning for this," he said. "Well-meaning parents are not sure how to frame the decision."

Maurer said that a shaming culture that puts the responsibility for education costs on parents can lead to disastrous decisions.

"There's a social competitiveness people need to be aware of," he said. "Don't just write the proverbial check for education costs."

And absolutely do not take out a loan from your 401(k) plan to pay for them. "Could there be a worse example of sacrificing your future than taking out a loan from your 401(k) plan to pay college costs?"

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Maurer suggests people ask themselves four questions before forking out cash for college: Can you help your kids, will you help them, what's your plan for helping them, and how will you execute it? Most parents have the means to set aside some money for their children's education. If they begin contributing to a tax-advantaged college 529 plan when their kids are born, the drag on income is far less than if you wait until later.

Maurer also sees college as an opportunity to discuss the value of education with children. For his part, he has told his two sons that he will contribute up to the cost of an in-state (South Carolina) university program. "If they want to go out of state or to an Ivy League school, they have to determine the value of that, because they're on the hook for the excess," he said.

Many parents may have trouble with that kind of tough-love approach. However, for most Americans, finding the right balance between helping your children and preparing for retirement is essential. Set clear limits on what help you can provide and stick to the plan.

You're doing your children no favors if you end up undermining your own retirement security. "It could be your kids who end up footing the bill," Maurer said.

By Andrew Osterland, special to CNBC.com

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