My life over the past couple of weeks has been fairly busy as you might imagine. My posting has become sporadic, at best, over the past month or two. First, it was because I was just in a funk with all of the adoption stuff and now I am just plain tired. It takes all of my energy to take care of him and also my other writing duties. I hope to share with you what I am feeling these days. Don’t get me wrong I am loving and I mean LOVING be a new dad. I wouldn’t change it. At the same time, I have some thoughts about the current state of my career, finances, and the like. None of it is bad, but I think just processing our new reality.
Considering this is a personal finance blog I also think that it is time that I get back to talking about issues concerning personal finance, with a clearly personal twist on my part. And that brings me to today’s subject, being an older parent and planning for college.
The issue of being an older parent and planning for your child’s future is going to become more and more common in the next few decades. People are getting married later in life and having fewer children. It is no longer atypical to have a child over the age of 40. But having a child later on in life does bring with it some interesting challenges, particularly when it comes to college planning.
I fully admit that it does give me a bit of pause to think that I will be 63 when my son turns 18 and graduates from college. I mean my dad had 4 grandchildren by then. Most of my friends have children that are teenagers and/or already in college. So it is taking a bit of getting used to. I am not going to give him back for anything, but it has really made me think about what we should do about college planning for him.
College Planning for Children
As a college professor, I know all too well the problems that students are having with student loan debt. I had my own student loan debt problems and until recently I thought I would have another 6-7 years of payments. My wife will have at least five more years of student loan payments before she is eligible for public service loan forgiveness and I do not want to saddle my son with the same kind of problems that we had. I will make sure that he doesn’t have these kind of issues, which requires planning ahead of time.
The normal way to plan for college expenses is to put money into a college savings plan like a 529 plan or an Coverdell Educational Savings Account (ESA). Most of them have their advantages and I have a post planned in the near future to talk about each and their virtues.
If I was in a “normal” situation, which would be to have children in my late 20s and early 30s, I would probably start saving for his education in one of these two accounts. Alas, I am not normal (and anyone who knows me would say the same…poor them). My age provides an opportunity for something different.
Because my child will most likely not graduate until he is 17-18 years old and I will be over the age of 59.5 I will be able to access retirement accounts penalty free. For those of you who don’t know, typically you cannot access your retirement accounts (IRA, 401k, 403b) until you are 59.5. If you did you would have a 10% penalty on the money pulled out and taxed at your normal tax rate, depending on how much money you took out. That is why most people would put money in a 529 or ESA account so they could access t that money and not have to use retirement monies.
Because I will be over 59.5 I am thinking that I might actually decide to take the money I would put into a college savings plan and put it in a Roth IRA. I have a Roth IRA, but I don’t fully fund it. This would allow me to fully fund that retirement account. I can increase retirement contributions and the money would still be there if need be when he goes to college.
A couple of other things that have me thinking in this direction is that in 18 years college education in the United States will probably be funded quite differently. Something has to eventually give with the amount of student loans we have in America. With 1.5 TRILLION dollars in student loan debt, the political winds are pointing to states and maybe even the federal government stepping in and offering different ways to fund college. That could be free college funded by the taxpayers such as in states like Tennessee, New York, and Rhode Island. It could also be that education is funded by the state, but students pledge to contribute a small percentage of their salary to pay back that tuition over a series of years. Australia has a similar model and Oregon is one of the first states to try to fund higher education in this way. The chances that higher education will be funded in the way it current is is probably slim to none when our son goes to college.
Another thing that I think about is my job. I am a college professor so I certainly value higher education. I think a post-secondary education is fundamental to success in this world beyond the boundaries of making money. A benefit at working at a university is often that employees of that university can go to that college for free or a dramatically reduced cost, which means that our kid go to school on the cheap. There are two problems with this, however.
First, my institution doesn’t offer that benefit. There is some small tuition benefit if my child were to go to my university or a similar one in our system, but it is small. Someday, our union might negotiate that benefit, but for now it doesn’t exist. So if I tried to get that benefit I would probably have to switch universities. That is a possibility. I mean I don’t know that I will be here for another 18 years, but we will see.
Second, I was hoping to retire before the age of 63. I have made no bones about the fact that I want to reach financial independence. I am huge fan of the FIRE (Financial Independence, Retire Early) movement. Early retirement is probably not in the cards for me, but that doesn’t mean I want to teach full-time until I am in my late 60s or full-time in the United States. If I want our son to have this college benefit one of us would probably have to work full-time until later on in our lives, much later than I thought. Don’t get me wrong I enjoy my job and have no plans to leave, but I also don’t think I want to be teaching until I am 70.
In my situation, there are a lot of different factors that have given me pause about putting money into a college savings plan. And I think those are items that older parents have to consider when thinking about planning for their children’s education.
What do you think? Are you an older parent? How are you saving for your child’s future? How do you think we will pay for college in the future?