Your retirement or your kids?

Helping out financially isn’t always the best thing—for you or for them

Driving to work the other morning, I found myself behind an ancient Toyota Camry, one with even more rust on it than my own. What really stood out about the car, though, was its back window, covered with decals representing no less than six big-ticket universities.

Maybe I'm jumping to conclusions here and the car's owner is actually a perpetual student or simply a collector of decals. But my guess would be that he's had to make some serious sacrifices to put kids through college. Driving the old car is probably one of them. And you have to wonder about his retirement savings—if he has any.

Most of us face trade-offs in saving for retirement, especially if we have kids or other family obligations. When I've discussed this with financial planners over the years, all have offered the same advice: Consider your own needs first.

While that may seem coldhearted, it can actually make sense for all concerned. With kids, for example, it's probably better to deny them now than to show up at their door 20 years hence, dead broke and looking to bunk on their sofabed for the rest of your days.

College costs

Brace yourself

Average tuition and fees for a private four-year college now run close to $24,000 a year, with some topping $30,000, according to the College Board. For in-state students at public colleges, the average is about $6,200 a year.

But, as the College Board hastens to point out, it isn't always that bad. Some 56 percent of students at four-year private colleges actually pay under $9,000 a year, and 43 percent of their public college counterparts get away with between $3,000 and $6,000.

If your child's college tab is closer to $3,000 a year than $30,000, you may have little trouble keeping your retirement contributions on track. But suppose the little overachiever is accepted at one of those $30,000-a-year places, which, at the current rate of college inflation, is apt to cost $36,000 by senior year. You could (a) try to talk the youth into choosing a cheaper school, (b) buck up and pay the bill, even if it means curtailing your 401(k) contributions for the next four years, or (c) shift as much of the financial burden as possible onto the kid.

Most financial planners I've known would choose (a) or (c). Too many parents select (b). "Usually when you're facing college bills you're at your peak earning years, and that often makes people too optimistic," says Michael J. Garry, a certified financial planner in Newtown, Pa. "You may think you'll have no problem paying those bills and retiring on schedule. Unfortunately, people often don't get to dictate the terms of their retirement. They can't always work as long as they want to. They may get sick or downsized."

Garry's advice: Help to the extent you can, but not at the expense of retirement saving. (He recommends putting aside 10 to 20 percent of pretax income each year toward that end.) Let your child make up the rest through grants, loans, and part-time work. Then, if all goes well for you, you can consider helping to pay off the loans later on.

The big wedding

Even the costliest college may seem like a bargain compared with what a wedding will run you: anywhere from $14,000 to $43,000, on average, according to the Wedding Report, a research firm. And that doesn't include the rings or honeymoon.

If you're likely to get the tab for one of these affairs, what can you do short of convincing the happy couple that eloping would be romantic? Mari Adam, a certified financial planner in Boca Raton, Fla., suggests taking a hard look at your finances and telling them: "I can afford to give you X. You'll have to do the rest."

Lacking a blank check with your name on it, they may even become more realistic about how fancy and expensive a wedding they really need.

Their first home or business

Your children might not have the cash to put 20 percent down on a $500,000 starter bungalow (especially if you've already stuck them with their college and wedding costs). Once more, Adam suggests reviewing your personal balance sheet and explaining exactly how much money you're prepared to contribute.

If that, plus whatever the couple can scrape up, isn't enough, Garry adds, they may just have to work and save for a few more years. Since houses aren't appreciating at the crazy pace of recent memory, waiting a while shouldn't hurt.

The same logic applies if your child wants to start a business. Contribute if you can, but don't put your retirement at risk.

It's your call whether to make it a loan or an outright gift. If you choose the former, you can plow the repayments back into your retirement savings. Or, if need be, use the money to replace that old clunker with all the college decals.

This article was also published in Consumer Reports Money Adviser. Subscribe now to get more expert financial advice you can trust.