The ongoing saga of the “Sandwich Generation” has 401(k) advisors perplexed. Longer lifespans and a shortage of funds to pay for it means baby boomers (and soon to be Gen Xers) often have elderly parents in need of care, children in need of an education and, oh yeah, there own retirement incomes requirements. Somehow, though, they seem to be figuring it out.
A recent report from student loan provider Sallie Mae and Ipsos Public Affairs finds fewer families are taking early withdrawals and the resulting penalties from their 401(k)s to pay for college education costs. Five percent of families used retirement funds to help pay for college in the 2015-2016 school years. The vast majority of those families fully withdrew the funds, while fewer than one-half percent borrowed against their retirement funds.
Retirement money paid for approximately 2 percent of total college expenses in 2015-16, whereas other parent savings paid for 9 percent, primarily 529 college savings plans. About one-third of families who used retirement funds to pay for college also used 529 plan funds.
“How America Pays for College,” introduced in 2008, is a Sallie Mae national study that annually surveys undergraduates and parents of undergraduates about how their families fund college. The study also queries families about their attitudes toward the value of a college education, and the relationship between education-related choices and cost considerations.
The perspective of “How America Pays for College” is to consider all of the resources families draw from to pay for college—including extended family, credit cards and retirement funds, as well as conventional paying-for-college resources, such as college savings plans, student loans, and scholarships—and to evaluate trends in paying-for-college behaviors over time.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
