You Cannot Borrow for Your Retirement

I frequently share this rather simple but powerful concept with my clients.

It sounds simple.

Yet, many people ignore it because they are busy being generous.

You want to pay for every cent of your child’s college.

You want to wipe out that low-interest mortgage as fast as possible.

These goals feel right in the moment.

In reality, they might be the biggest financial mistakes you ever make.

Your Children’s Education

Education is a major expense, but it is a flexible one.

Your children have tools at their disposal.

They can hunt for scholarships or work part-time jobs.

Most importantly, they can borrow money for their degree which I understand is not ideal but doable with proper planning.

Another great resource is collaborating with the grandparents toward this goal.

I work with many clients who are happy to help their grandchildren in a meaningful way and college education is certainly one of them.

Paying Off Your Mortgage Early

It is very tempting to pay off your mortgage ahead of schedule.

Owning your home outright feels like a major victory.

However, you should look closely at the interest rate on your loan.

If that rate is low, the interest portion may not be that significant.

That extra principal payment is essentially locked into the walls of your home and you cannot easily access your home equity in retirement (unless you sell your house).

Money you put into your retirement accounts may give you a much higher tax break and can grow at a higher rate over time.

Also, keep in mind that even after you pay off your mortgage, your real estate taxes and insurance remain the same.

Prioritize Your Retirement

Simply put, there is no such thing as a retirement loan.

No lender will give you a check to pay for your groceries or your medical bills once you stop working.

If you arrive at your golden years underprepared, it will be difficult to recover.

I suggest you think of your annual contributions to your IRA or your 401k as a limited resource.

If you miss any year of contributions, you cannot fully catch up in the future.

Sure, it may be possible for you to contribute more in the future if your income increases, but your compounded tax-deferred growth will be reduced.

What Does This Mean to You?

Think of securing your own retirement as a gift to your family.

If you are financially stable, your children will never have to worry about supporting you later.

I know this is a major goal for many of our clients.

You are protecting your independence and their future freedom at the same time.

So make your retirement the priority!