Give Them Education...or Retirement | Series 5.6

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Welcome to the EnjoyMore30s Family Finance

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podcast, the only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly: 00:00:16

Hello and welcome once again to the EnjoyMore30s

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Family Finance podcast. So every week, I am here talking to you

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about money so you can take some steps forward, gain that

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confidence and just remove that financial anxiety. That's what

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we're trying to do to allow you to focus solely on making your

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life more enjoyable. This series as you know, by now, all about

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the kids, the Your Kids Money Mindset series, and we're going

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to continue doing that for you here today. As parents, we want

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obviously to help out our kids. That's that's a no brainer. We

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all know that's true. But it seems we're programmed as

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parents to feel this obligation many times to help pay for

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college. Everybody's doing it. If we're not giving that to our

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kids to then it's almost like we're bad parents sometimes. But

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what if we looked at something else? What if we helped them pay

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for an even bigger future expense instead?

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Now as always, if you like what you're hearing, please make sure

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to subscribe or follow us on whatever podcast app you listen

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to, wherever you go. Clicking that star, leaving the review,

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it really, really helps us out. We want to reach millions, all

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the millions of other young families out there just like

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you.

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Now last week, if you remember, we discussed all savings for

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your kids through life insurance policies, the so called kind of

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Gerber policies, and dug into why in my opinion, if you're

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trying to save if the goal, the primary driver is 'I want to

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save for my kids', then you almost certainly don't want to

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be going about doing that through that life insurance

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policy. So if you haven't checked out that episode yet,

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definitely do that soon.

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Now, for today's episode, it's titled Give Them Education...or

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Retirement, which is a really odd title, probably you haven't

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heard it put that way before. But we're going to cover

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something like I said, it might initially sound crazy, but it's

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really an intriguing way of looking at it. It's an

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intriguing idea that may be more attractive than you could

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realize. The goal for today's episode is to help you

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understand that you do have choices for how you choose to

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help your children. We know you want to help, I'm going to just

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go ahead and assume you want to help your children. So let's

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make sure you know all the options that are at your

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disposal.

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When I went to college, I knew absolutely nothing when it came

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to money. Zero. And had very little appreciation for money. I

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was 18 years old. I mean, what did you really expect? If you

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think back to when you were 18 years old, I would guess you're

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probably in a similar boat. You know, I knew working in high

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school that you know, it was hard and I valued the money that

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I earned. But you know, everybody goes to college,

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right? I hear everybody takes out loans, right? So, you know,

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part of me was like, who really cares, this is normal, taking

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out a bunch of loans is normal, and the value and the amounts

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that added up, they don't really resonate with you at that point

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in your life. I was offered a full ride to Montclair

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University. So they were like "here, take $100,000 for free",

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which I obviously being the intelligent 18 year old that I

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was passed up to go to TCNJ and pay money and take out loans.

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Now I did meet my wife, Lauren at TCNJ so I have to say,

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obviously it was 100% worth it. But from a financial standpoint,

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that was like, you know, crazy, stupid. So 18 year olds going to

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college are for the most part, not financially intelligent, at

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least what I've come across, in my opinion. The loans that I had

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after college, they were in some ways a blessing to me. They

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taught me that, 'hey, this is what 10s of 1000s of dollars of

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debt looks like', right? This is what it is. This is what having

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to pay back loans looks like. This is basically you know what

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being responsible, this is being an adult, this is what this

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looks like. And what I found in being an advisor is that most

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people want to kind of replicate whatever their parents did for

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them. Whether that be you know, some loans or paying 100% of the

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school costs for the kids so they don't have that hanging

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over their head.

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The other option though, that can be incorporated, which is

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this crazy idea, right? Is retirement instead or in

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conjunction to this traditional college focus. So with paying

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for college, you're trying to get them ready for that race to

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come, right? Yeah, we want to get all this off of them. Do the

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training, the conditioning, the endurance, so that when they get

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out of school, they have less over their heads, less weight on

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their shoulders, and boom, they're just ready to go.

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Thinking about retirement instead though is kind of like

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just saying, instead of trying to only focus on the

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conditioning, the endurance, the training, all that kind of

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stuff, why don't I just try to make the race a little bit

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shorter, and then they don't need as much maybe. So it's a

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different way of approaching it. So here's kind of how it works.

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And like anything, it doesn't have to be all or nothing, you

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don't have to only save for college or only save for

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retirement. But these are just all your options so that you

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know what you have to choose from, at least when you mix them

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together, and whatever proportion makes sense for you.

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So let's say that you save $150 a month for your kids to go to

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college. So 18 years worth when they're 18 years old, if we

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assume a 7% return, you end up with around $65,000. And if you

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use this for college in the more traditional way, then this is

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all gone. Right? And for simplicity sake, just for the

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sake of this explanation, let's say they went to maybe a

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community college or in state or whatever combination, but you

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know, $65,000 was the perfect amount, it covered the whole

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entire bill. So certainly not a bad setup for them then, right?

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Here's where it gets fun, though. So let's say instead,

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let's say that they took out loans for the full amount, which

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for those who had some school loans and valued that lesson,

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that might be a goal anyway, like for me and my kids. I kind

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of want them to have some degree of loans, because I did and I

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feel like that really did teach me a good lesson of how what

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debt looks like. And this is what your choices look like

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later on down the road. So what if instead now so we still have

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this $65,000. And we instead give it to them in something

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like a Roth IRA into contributions over the next 10

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to 12 years, whatever it might be. So every year we put money

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out of this pool that we created for them we're putting into this

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Roth IRA. Over 11 years with the $6,000 a year limit, we put all

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$65,000 into the Roth for them. Alright, so now when they're 65,

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and they're ready to retire, what did you give them instead

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now, assuming that same 7%. So I can either give them $65,000 for

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college, or I give them $65,000 for retirement. That $65,000 at

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age 65 now, when your kid is ready to retire, is worth

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roughly one and a half million dollars at that 7%. And oh wait,

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if we use a Roth IRA, it's completely tax free. You saving

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$150 a month for 18 years was one and a half million of tax

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free money for them at age 65 for retirement. I mean, how huge

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is that? So when we compare, would you rather have in this

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example, the $65,000 pay off all of these college loans? Or that

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$65,000 give them one and a half million dollars when they're

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about to retire of tax free money? You know, what would be

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your what would be your choice? And I'm not saying there's a

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wrong choice or a right choice. But you could see that there's

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definitely at least a choice, there's something to think

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about, there's something to pause and say, 'Hmm, maybe I

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want to evaluate this option over here a little bit, at

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least'. Now a completely fair comment is that this is a really

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long payoff, right? This is a long term gift. I'm starting now

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and they're not getting that for a long, long time. And it may

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feel difficult to give for such a long time pay off into the

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future. And again, that's completely fair. I get that. At

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the same time, you're actually giving them something in the

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present, if you share that this strategy is in existence, is an

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application for them today. 'You need to pay off your school

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loans over the next 10 years' most likely true, you know,

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'that's the deal, Johnny'. But when you have your own family,

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and trips to Disney, and all that other stuff living in the

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present that you want to do, I'm giving you the freedom to go do

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that. Because you already know that a huge chunk of your long

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term retirement goals are now off your shoulders. You don't

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have to have that weight on you. I'm giving you freedom of the

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present moment.

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I'm not actually giving you money at this point in time I'm

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putting it away for your long term future but what I'm giving

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you in the present is the freedom to go and live with your

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family. So you are giving them something if you phrase it like

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that. Just like when I was going to college and didn't value the

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free ride, your kids likely when they get out of school and you

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tell them to save early, they probably won't get that either.

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They're probably say, 'Well, you know, I really want that new

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car' or 'Well, no, I really want to move out of mom and dad's

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house and into an apartment where I can have some fun'.

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Saving early probably won't hit them. Just like taking out loans

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didn't hit me when I was 18 years old. When you start

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working as a full time job, it feels like a huge paycheck. It

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might be something that's relatively low, you wouldn't say

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oh wow, that's a huge amount of money. But when you go from

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making nothing at all to like $40,000 a year, whatever it

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might be, it feels huge. And your first thought isn't, you

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know, okay, now I get to save for my long term future. That's

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why we get and you probably have heard many people say, maybe

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even yourself saying, 'If I only started when I was young',

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you're taking that off of them now. Remember, they can take out

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loans for college, that is definitely 100% a thing, but no

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one will give you a loan to get through your retirement. That's

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true for you and it's true for them, too.

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So remember the goal for today. Do you have to do this at all?

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No, of course not. You don't have to do any of this. If I'm

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being honest, I'm still planning on helping my kids to some

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degree for college. But I also plan on helping fund some of

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their long term needs like retirement, because I can get a

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lot lot more time for it to grow, and therefore a lot lot

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more bang for my buck. Personally, if I can teach them

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about money through some student loans, and also free them up to

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be able to enjoy more time with family and make more memories

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with their kids because those long term burdens aren't on

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their shoulders. I don't want them to feel pressure, oh, I

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have to work excessive hours, to give my kids a good life and

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then deprive them of what kids tend to want more than anything

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anyway, which is just you and your presence. Then to me,

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that's a win/win. But as always, it is what you want to

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accomplish. So again, that's the goal for today not to do this

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strategy, but to know all your options and the angles and the

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positives and the negatives, so you're more confident in

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whatever one you choose.

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Overall, thanks so much for tuning in today. I always love

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connecting with you. Join us here again next week for the

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episode that we're calling You Want a Trust? Do You Know Why?

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Where we're going to cover some basics of these things called

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trusts. You've likely heard of them about you know, here and

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there on TV otherwise, they may seem very advanced and

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beneficial and for the very wealthy, but may likely be

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something that you don't actually need. You might not

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actually have to worry about these things called trust. So

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we'll give you more background, more education on that so you

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know whether or not it's even something you should be looking

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into more.

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Overall, if you are able to implement what we covered today.

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Fantastic. You have less to worry about than before, you can

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focus more on enjoying life. That's what I want to help you

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do. If you're wanting help with any of these things, though, if

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you have questions you need help in clarifying, check out the Ask

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Joe section on the show's website www.EnjoyMore30s.com.

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That's EnjoyMore30s.com. Until next week thanks for joining me

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today and I look forward to connecting with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax, or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer, or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor Member FINRA/SIPC.