You can’t borrow for retirement

Tyler Kert
Tamarack Wealth Management

I heard it again the other day: “Well, we cashed out some of our retirement account to help with Susie’s college.” Clearly, as a parent, you want to help your kids. You want to give them opportunities, reduce their stress, and set them up for success. College is expensive, and many parents want to step in and help cover the cost.

But here’s the reality: You can borrow for college. You cannot borrow for retirement.

When you take money out of a retirement account early, you’re not just paying taxes and possibly penalties; you’re also giving up years or even decades of compounding growth. That $20,000 or $50,000 you pull out today isn’t just $20,000 or $50,000. Over time, it could have turned into two or three times that amount or more. Once it’s removed, there’s no loan you can take out later to refill your retirement account. Your kids, on the other hand, have options.

Now, am I saying that you should never draw from your retirement accounts to fund your children’s education? No. Not necessarily. But, before you do, take the time to consider some of the other alternatives available to your kids. I made it through six years of college - two majors and a master’s degree - without my parents’ help or taking out student loans. Here’s a few strategies that made that possible.

Attend a community college

It’s not glamorous but it is cost effective. I got my associates degree from Wenatchee Valley College through their running start program. By the time I graduated high school, I had two years of college under my belt, for free. Yes, there was the occasional book that I had to rent here and there, but my tuition was covered. 

Many high school graduates don’t know exactly what they want to study. Why pay top dollar at a four-year school, figuring out what you want to pursue, when you can satisfy the same prerequisites at a community college for a fraction of the cost?

Apply for scholarships

One of the biggest opportunities that many students overlook is applying for scholarships. Forbes has reported that over $100 million in scholarships go unclaimed each year. Students pursuing higher education are in a unique position. For a few short years, they have the ability to ask for money with no expectation of paying it back. They can apply to scholarships offered by local businesses, national organizations, foundations, community groups, and the list goes on.

When else in life can you write a letter to someone you’ve never met and ask for money to help you move forward? Unless your child plans to become a preacher or a politician, that window closes pretty quickly. As far as I know, there are no scholarships for retirees.

Scholarship applications are a daunting task for many high school graduates. Writing essay after essay was not my idea of a good time during my senior year. My parents had a brilliant idea: they paid me an hourly wage to fill out scholarship applications. All of the sudden, I could mentally justify spending hours writing essays, editing resumes, and asking for letters of recommendation because I was earning money while doing it.

Encourage your kids to treat scholarship applications like a part-time job. A few hours spent can result in thousands of dollars in aid. That’s a far better return than most jobs will provide.

Work a part-time job

There’s value in having skin in the game. When students work to contribute to their own education, they tend to take it more seriously. A part-time job during school or full-time work during the summer can make a meaningful dent in tuition, books, and living expenses.

It also builds habits that will serve your kids long after graduation. You should not be the only one that is contributing financially to your child’s education. Working my way through school even helped me narrow down the career that I wanted to pursue after graduating. 

Final thoughts

It’s a natural desire to want to help your kids. However, being a wise financial steward requires you to protect your own future first. It’s like the classic airplane safety briefing – secure your own oxygen mask before assisting others. By preserving your own retirement, you can avoid needing your kids to bail you out later. Encourage your children to explore lower-cost options, apply for scholarships, and contribute through working themselves. These experiences not only reduce costs but also build resilience and ownership in your kids. College can be financed in many ways; retirement cannot. So, the next time you’re tempted to tap into your retirement account to help pay for college, pause and remember: You can borrow for college. You can’t borrow for retirement.

This material is for informational purposes only and does not constitute financial, investment, or tax advice. Please consult your tax advisor or financial planner to discuss your specific circumstances before making any decisions. Securities offered through Cetera Wealth Services LLC, Member FINRA/SIPC. Advisory services offered through Cetera Investment Advisers LLC, a registered investment adviser. Cetera is under separate ownership from any other named entity.

Tyler Kert, a financial advisor and CPA, provides financial planning and tax consulting services at Tamarack Wealth Management in Cashmere, WA. 209 Woodring Street, Cashmere, WA 98815. (509) 300-1040.