You Can’t Get a Loan for Retirement

Standard

Well, I guess that’s not really true. You can get a reverse-mortgage. If you own a house with enough equity. Or you can pull equity out of other real estate you might own. Or borrow from relatives.

What I should say is you don’t want to get a loan for retirement. It sort of goofs up the low-stress time we’re trying to create for our golden years, having to worry about paying back a loan or destroying equity.

LET YOUR KIDS OR GRAND-KIDS PAY FOR THEIR EDUCATION

I know, I know. It sounds heartless but it’s true. You offspring can, and should, get a loan for their education. It’s a great investment. Probably the very best one they’ll make their whole lives. If you haven’t already seen this famous chart form the Bureau of Labor Statistics, here’s the summary:

Median Weekly Income (annual):

High School Grad: $668 ($34,735)

College Grad: $1101 ($57,252)

Advanced Degree: $1386 ($72,072)

It’s real easy to multiply these numbers over a 40-year career. The basic bachelor’s degree earner gets $900,000 more over their working life than a high school-only grad. The advanced degree person gets $1.49 million more!

Can the kids afford it or what?! According to The College Board, the average cost, per year, of state college for a resident is about $8,900. Over four years that’s $35,600. Remember, that person will average an extra $900k in lifetime income. Return? Subtracting the college cost: $864,400 or 2,428 percent! That’s a huge return on investment.

(Here’s the link to the BLS data.)

Plus, there are many ways to make this great investment into education:

  • loans
  • work studies and other jobs
  • grants
  • scholarships
  • accounts like Education IRAs and 529 plans (funded from gifts)
  • service agreements (e.g. Peace Corp, ROTC, military)
  • local community college then transfer to a university
  • tax credits and probably more ways

Now, back to retirement, can we get grants and scholarships to pay for it? Of course not. So, if we have to make a choice, the higher priority is our retirement. Not that we don’t want to pay for the kids but we may not have the resources. And they’ll be just fine with that extra million or million-and-a-half.

This advice comes with a big caveat: If you have several million already for your retirement you can probably spring for education costs. Some folks do and that’s wonderful. Pay up. Your grand/kids will always remember it and be grateful. And probably earn a lot more lifetime income from your generosity.

 

 

Advertisements