An age-old question, by way of reader mail …
Dear LBYM:
I’m in a career where my salary is probably going to at least keep up with inflation. After staying at home with our three girls, my wife is probably going to start earning money again, too.
Our expenses, meanwhile, are probably going to peak ten years from now when our older two are both in college. I think a lot about the period after that when we’re going to be making the most money we’ve ever made, and yet our expenses will probably not be as high as they are now.
Of course we can’t wait until then to start saving for retirement, but I do wonder if it makes sense to spend more now—as a percentage of our means—in light of the fact that we’re probably going to have this excess later.
Am I meant to be in the audience, by the way? I couldn’t tell if LBYM was addressed solely to women.
Sincerely,
A Mister in Madison
Dear Mister:
My company is focused on women, but we are happy to help men with their money, too. Just need to confirm that your will leaves everything to your wife—thanks!
I love your question in that it so clearly highlights the most important thing we need to do before we start thinking about income and expenses and cash flow—set some goals! I don’t know that I can answer your question if I don’t know what your goals are, financial and otherwise.
Do you want to pay 100% of your girls’ college expenses? What about grad school? Do you and your wife want to retire early? Do you want to leave assets to your heirs or do you want your last check to be to the undertaker? Are you in good health? What do you envision your retirement to look like? Travel? Volunteering? Walmart greeting?
The answers to these questions will help you set goals and priorities. Only then can you start to lay out a plan to build towards those outcomes.
That said, there are a couple of things to think about as you prioritize funding your kids’ college expenses over your own retirement … which is what it sounds like you are doing. The main issue with such a plan is that there are waaay more people willing to fund the former vs. the latter. What happens if you write that last check to the bursar … and then realize your salary didn’t keep up with inflation or your spouse wasn’t able to return to work as planned? Launching your kids into the world without student loan debt is a wonderful gift … but so is not needing them to support you in your dotage.
There are also generally more opportunities to set aside retirement savings with pre-tax dollars than there are with college savings. You also have time on your side with retirement savings since you have two plus decades for those dollars to grow. You can always help your kids later by helping them pay off any student loans or gifting them money separately for other big ticket items (a first home, their kids’ college funds … health insurance).
Before giving you a specific plan of action, I’d want to sit down and figure out the likeliest scenarios for your cash inflows and outflows. Regardless, I’d be surprised if the numbers told you to wait on saving for retirement.
Sincerely,
LBYM
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