New research by the Society of Actuaries (SOA) looks at the challenges that families face—particularly the impact on their retirement plans—when saving for both their retirement and a family member’s college education.
Serving as the research arm of the SOA, the SOA Research Institute conducted a survey among 1,000 U.S. respondents who are working or retired and who both regularly save for retirement and are currently saving at least $500 a year for a relative’s and/or friend’s college education.
Not surprisingly, it found that nearly 6 in 10 (58%) respondents aged 25 – 80 who are of working age or retired say they have delayed retirement significantly or moderately due to these dual financial goals.
Additionally, two-fifths (41%) of retirement/college savers indicated they have used retirement funds to pay for the college education of a relative, with the risk of a tax penalty for early withdrawals.
Just how many people are saving for college expenses? According to the findings, 93% of respondents are saving for their own children’s college education, while 66% of Baby Boomer respondents (aged 58 – 76) are saving for grandchildren. Many respondents are also saving for other family members and/or friends.
Along with college and retirement, respondents, not surprisingly, have other savings goals as well. In this case, the survey found that 92% are setting aside money for an emergency fund; 87% for travel; and 68% for purchasing a home.
“The challenge of prioritizing different savings goals, including college for family members, has led to families making difficult choices, such as delaying retirement plans,” says R. Dale Hall, managing director of research at the SOA Research Institute. “This consumer survey helps identify the underlying challenges individuals and couples face in balancing multiple financial goals, such as funding college education, providing for unexpected financial needs and planning for a secure retirement.”
Compromises Made
The survey also reveals that nearly two-thirds (63%) of respondents have had their ability to save for another's college education impacted by having to save for retirement at the same time.
Consequently, 40% of all respondents “will or have had to” take out loans and 16% will or have had to borrow from family or friends to help pay for someone else's college. Moreover, about the same amount (39%) of all respondents work longer hours and 26% have taken on additional jobs in response to the dual saving goals.
Many college fund beneficiaries have also had to compromise, according to the findings. Nearly half of all the college/retirement savers surveyed say their beneficiaries have experienced a medium or large impact on their college plans as a result of the savers' dual financial goals.
In this case, 40% of respondents report college fund beneficiaries will have to choose a public in-state college over a private or out-of-state college. In addition, 35% say their collegegoers will have to choose a two-year community college over a four-year institution and 12% report they will postpone going to college.
Results were weighted to be nationally representative of those regularly saving for retirement and someone else's college education (by age/gender, region, race and ethnicity). The survey was fielded June 6–14, 2023.
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