Parents want the best for their kids, this is one fact of life that is universally known. This is also true especially when your son or daughter is about to go to college and parents are willing to do anything in order to come up with money to fund for their child's education.
According to Scott Hanson, co-CEO of Hanson McClain Advisors, some parents would even dig into their retirement funds just so their kids can go to school. He advises parents not to get into this trap. He believes that this kind of practice can wreak havoc into the lives of those going into their golden years.
In his commentary article on CNBC.com, Hanson, gave 3 best advices why parents should not dig into their retirement funds for in order to put their kids through, to college, and here they are:
The day will come when you will need the money yourself
The main reason for investing into your retirement fund is for your future. Scott Hanson has observed that many people these days are putting off retirement for some reason. Little do they know that there will come a time, when circumstances uncalled for occur, that they could be forced to retire earlier than planned.
If half of us will not be ready, it would be a big disaster if we don't have anything to take from for our basic needs while we are no longer able to work.
Missing out on compound interest
Compound interest is the world's 8th wonder. If you understand it, you can easily be making money later without having to work hard. If you don't, then you will be working for the rest of your life.
Assuming you earn 6% on your retirement for the next 15 years, if you've saved up $10,000 dollars by then it would be worth around $24,000.
You will get an early withdrawal penalty from Income Tax
You could have saved those if you only waited, since. Federal Taxes goes from 0 - 39.6 percent. That's a big ouch on your savings.
What to do instead? Consider the following:
1. Have your kid live at home and go to a nearby University or College instead of living very far away just so they can expensively study. Living a college life does not equate to better education.
2. Encourage him to enroll at a Community college, instead of a University.
3. Have him pay for his way through college by being a working student. He will appreciate education when he pays for it. Here's a video you can show your incoming college kid for personal finance purposes.
