Dear Liz: I’m facing the end of child support and need to finance my son’s college education, plus I have some home maintenance costs looming. Should I get a home equity loan or line of credit (assuming I can qualify) to pay off these pressures, or should I raid my retirement fund? I am 60, make about $80,000 a year and have no debt besides the mortgage and a car loan, but I have only about $100,000 in retirement accounts. (I had to wipe out my savings once before in a two-year spell of unemployment.)
Answer: There’s no polite way to put this: You’re too old and too inadequately prepared for retirement to be paying for your child’s college education.
It isn’t a good idea to raid retirement funds prematurely in any case, but certainly not when you have so little saved. Borrowing to pay for school would make sense only if you were adequately prepared for retirement and had plenty of time before then to pay off the loan.
Even if you plan to work into your 70s, life may interfere. Nearly 40% of retirees interviewed by the Employee Benefit Research Institute say they had to quit work before they wanted to, typically because of layoffs, poor health or the need to take care of a family member.
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You must focus on building up your retirement fund as much as possible while you still can. That means your child will need to figure out how to pay for college on his own. Many students save money by attending a community college for two years while living at home, then switch to a four-year public institution to finish their degrees. Your son may qualify for scholarships or grants; if not, federal student loans can help him pay the bills without sinking too far into debt.
You really shouldn’t be borrowing for home maintenance costs either. Ideally, you would have set aside money from your current income that’s earmarked for these costs. If the repairs are pressing, however, you can pay for them with a low-cost home equity line of credit and then repay the loan as quickly as possible.