You can borrow for college. You can't borrow for retirement.
That's what financial planners advise parents who pay for kids' tuition and fees — by stealing from retirement accounts.
"Have the hard conversation with your kids," said Bill Van Sant, managing director at Univest Wealth Management.
"In some families, it feels like the kids are making the decisions, going to colleges where their friends attend or which have prestige. They don't understand what the impact is on their parents," Van Sant said.
Historically, parents protect their kids from the family's financial information, or want to be seen as "coming through" for their children and pay any cost.
But the soaring cost of college — especially for multiple children — means those days are over, the Inquirer has found.
One of Van Sant's retirement clients had three children, and the oldest child turned down a full ride at a cheaper university. Instead, the family paid out $280,000 for her to attend the college of her choice.
"But their savings can't keep up with college for the other two children. They've spent all the savings on one child. They won't be able to afford it or will take out loans, or out of retirement. And they'll have a hard time making that up" in their later retired years, Van Sant said.
That's a missed opportunity for a family team meeting, advisers say.
What can't be missed is the exploding level of debt nationwide.
It took 42 years — from 1965 until 2007 — for the nation's student loan balance to grow to $500 billion. It took only six years for the loan balance to double to $1 trillion in 2013. And only five years later, students hold nearly $1.5 trillion in loans, according to the Department of Education.
How to Protect Your Retirement from Your Children
Hold a family summit. Lay out the total amount you've saved for your retirement, college, and other accounts.
Explain what you earn after taxes and other expenses. It can be a shock to your kids to hear what you can afford, so explore community college for the first two years, work-study, and loans.
"But the more the kids understand that at 16 or 17 years old, the less resentment they have. Moreover, it pays off when they're in the workforce. They're making better financial decisions," Van Sant said.
Major choices. Part of a family meeting can focus on choice of majors. Temple professor Douglas Webber has broken out average annual salaries by major, part of his research at Temple, which he said can help families plan financially.
Among the best-paying majors? Any kind of engineering, finance, economics, nursing, information science, and marketing.
Home equity. If parents borrow for college, it's often better to borrow against a house using a home-equity line rather than to use federal or private education loans.
"Many of our clients refinance student debt using their investment account or home equity, to get a lower rate," said Jerry Davidse, Philadelphia-based Merrill Lynch Wealth Management adviser.
If a grad owes $100,000, the parents can "refinance that loan at a lower interest rate, but continue to have the children make automatic checking account payments to the home loan," he said.
Avoid Parent Plus Loans. Webber hears horror stories from his students about their parents taking out Parent Plus Loans — and ending up in financial hardship.
"It's a bad idea" for parents to borrow heavily, Webber added. "There are so many protections for students themselves with federal loans — like income-driven and income-based repayment. Parent Plus Loans are higher interest loans, but you don't have the same protections."
Slow down the subsidies. Student loans often trail young adults into their 30s and 40s, Davidse said, prompting older parents to continue to help with day-to-day expenses for grown children. Pennsylvania, where graduates rank No. 1 in the nation for student debt, with an average $36,193 loan balance, is ripe ground for this scenario.
"Supporting adult children significantly changes the way their parents thought they could retire. They can't work anymore; their nest egg is everything they're going to have," Davidse said.
Parents in the U.S. now spend $500 billion annually on their 18- to 34-year-old adult children, according to a Merrill Lynch study conducted with Age Wave, compared with $250 billion contributed to retirement. Nearly two-thirds of parents sacrificed their own financial security for the sake of their children.
"Often, it's really a financial strain. When adult children still can't support themselves, we do a family meeting, go line by line on their monthly budget, cutting out food delivery and ride shares," Davidse said. "The parents then see the kid spent $35 for cheeseburgers delivered to their apartment while the parents are eating leftovers."
Consider insurance. Eileen McDonnell, chairman and chief executive of Penn Mutual Life Insurance Co., recommends a permanent whole life insurance for parents as a forced savings mechanism, an alternative to a tax-advantaged 529 plans. Whole life insurance can be especially valuable for single women, who have competing demands for their investment dollars.
"If you buy life insurance with a death benefit, and anything happens to you, the kids still go to school. It builds cash value you can draw on, and you borrow from yourself. Those funds can be used as supplemental retirement income and our products have chronic illness riders to access face value of life insurance should you become disabled."
McDonnell herself owns one of these policies to pay for her daughter's college.
Adam Sherman, founding partner at 1847Financial, agreed. Preferred funding sources would be 529 plans, capital assets such as a brokerage account, or accessing cash value life insurance policies, he said.
Invite the kids to live at home. Michael Romano, an Exton resident, lived at his parents' house in Yeadon, took the subway to Temple, and skipped spring break.
"I also worked throughout the school year and graduated with a very low loan balance," he said.
A retired law enforcement officer, Romano now has 15-year-old triplets. He is not demanding that his kids live at home as he did, but he says his kids have been "brainwashed into going to in-state schools with lower tuition."
For some parents, it's harder to have that conversation. Parents may fear that as the family guardian, they must "come through" for their kids no matter what — and that explaining financial limits would somehow let their kids down.
Nothing could be further from the truth, Van Sant said.
"I've coached parents to go over college budgets, tell kids here's what we as a family are allocating, walk them through the FAFSA form. Instead of hiding, invite the kids into the situation. I've heard parents say to children, 'we figure out finances. You stay out of trouble.' That's not the way to operate. Bring them together."
Instead of adding to your debt burden, parents, do yourself a favor and stop keeping financial secrets.