4 Ways Advisors Can Help Single Parents Plan for Retirement, College

Many single parents save for college at the expense of their own retirement

Sometimes it's a bad idea for clients to put their children before themselves. Sometimes it's a bad idea for clients to put their children before themselves.

It’s no secret that the price of a college education has risen. According to Bloomberg, tuitions have increased 538% since 1985, and they keep climbing.

Education costs often leave those with modest means stuck between a rock and a hard place — they either skip a college degree and make substantially less in their lifetime or try to finance school with outside means, which can lead to an enormous amount of debt.

Parents, even with higher incomes, face a tough decision of their own: how to split their savings between their children's college and their own retirement. Many single parents in particular struggle with balancing these two burdens by themselves.

When forced to choose, single parents tend to save for their children’s education at the expense of their own retirement, a recent Allianz study found. As an advisor to single-parent clients, it is critical to understand what drives them to make this choice and to ensure they are allocating their savings wisely. Keep reading for four ways advisors can help their single-parent clients:

Understand Their Background

1.  Understand Their Background

Not just their financial background, but who they are as people. The reason why many single parents might choose to save for their child’s college education can sometimes be rooted in their desire to keep their children away from long-term struggle.

“I think a lot of it comes down to what they’ve been through and they want to save their child from any pain of struggle from what they’ve faced,” Sean Moore, a certified financial planner, told ThinkAdvisor. “Going from a happily married person to a single person is a big game changer — psychologically, emotionally and financially.”

Moore, who has a background in retirement planning, started his own firm called Smart 4 College geared to providing financial guidance for families, especially young parents. By understanding what parents’ goals are, he says, advisors can better equip themselves with the knowledge and tools to serve their needs.

Larry Moskat of RIAA Advisors tells ThinkAdvisor that funding a child’s education is good for promoting the child’s well-being. Moskat also has a background in clinical psychology and uses that knowledge to better serve his clients.

"It’s [also] good for meeting expectations, for assuaging guilt (or even displaced anger at your own parents) from your own childhood, and it satisfies an unconscious drive to move our species forward,” he says. “It’s bad in that as a parent, we may suffer and interestingly, may have our own sufferings boomerang back to the very children we sought to support as we have to move in with them, enlist them as caregivers, etc." 

If You Have to Choose, Pick Retirement Over College Savings

2. If You Have to Choose, Pick Retirement Over College Savings

A college student has financial options beyond parental support, like work, loans and scholarships. The parent, once retired, has less recourse.

Parents aren’t being selfish by protecting themselves, says Elle Kaplan, the CEO and founder of LexION, a wealth management firm.

“A student can take care of themselves,” she says. “There’s no work-study for retirement.”

While helping foot the bill for college “can be a benefit to the child if the parents can afford to help them, it can cause parents to struggle in their later years, even to the point that the parents cannot afford to retire,” Garry Patterson, Area Manager of ClearPoint CCS, told ThinkAdvisor. ClearPoint CSS is a nonprofit agency that offers free consumer credit counseling.

Single Parents Safeguard Assets

3. Help No-Longer-Single Parents Safeguard Assets

This is important whether a parent is entering his first, second or third marriage. Moskat, as a parent himself, suggests setting up funds in case the unexpected happens. Setting up a trust for both the spouse and child could be one option. He also suggests getting assistance from an expert. “It comes down to a combination of financial and estate planning using a financial planner and estate attorney working in sync with each other,” Moskat said.

Plan for the Worst

4. Plan for the Worst

As a sole caregiver, planning for death is important. The first step is to “make arrangements ahead of time with a succession of people who would be willing to take on the obligations of caring for your child if you are gone,” Moskat advises.  He says that life insurance policies are the most efficient ways to do this. “If uninsurable, then a trust for the benefit of your child can be drafted specifying that the assets bequeathed to the trust are to be used for the child.”

The trust can be used for college education or any other type of expense, Moskat added. 

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