Put Your Oxygen Mask On First!
The title for this blog post is courtesy of the airline industry. I didn’t fly on my first airplane until I was 19 years old. The entire experience was quite amazing, even the pre-flight safety announcement was cool. I learned my seat could serve as a flotation device, I had this inflatable life jacket under my seat, and there were these blowup bouncy house style slides to exit the plane in certain emergency situations. But I specifically recall when the flight attendant described the actions passengers are to take when the oxygen masks deploy from the ceiling above. I remember when she said …”for those traveling with small children…” and in my head I quickly finished her sentence…be sure to put the mask on your kids first…right? Wrong! Instead she said “put your oxygen mask on first”. Initially I was baffled by this notion but soon realized that people must first help themselves to be in a position to help others.
It’s a real pity that this principle isn’t also practiced by more parents regarding their finances as well.
As a parent you took on a self-less job. You’ve sacrificed a lot to help your kids have a better life than you did, so it may seem completely natural for you to continue to sacrifice financially and help them out first. However, this idea can be catastrophic (financially at least) for your future.
As a father of 3 wonderfully energetic boys I understand the immense desire to sacrifice to make our kids life the best possible, but as parents we need to put on our oxygen masks first.
Consider These Sobering Stats
1 in 3 US adults have no money saved for retirement and 1 in 2 have less than $10,000.
For many mothers, the data is worse. Women are 27% more likely to have no money saved for retirement, yet on average they will have a much longer retirement!
For those with company retirement plans, 1 in 4 workers aren’t saving enough to get the company match on their retirement contributions. That’s free money they are not getting!
*https://money.com/retirement-savings-survey/
It Doesn’t Take Much to Pay Yourself First
It’s incredibly important to note that it doesn't take all that much financially to put our own oxygen masks on first (15% income towards retirement). If we put the expenses of club sports, theme park passes, expensive vacations, college, etc. before we save for retirement, our lives will be incredibly challenged in retirement.
Let’s focus on just one well intentioned example:
College
It’s an incredibly noble desire to help pay for our kids for college. After all, college degree holders over their lifetime earn up to $900,000 dollars more than a high school graduate, and those with graduate degrees earn substantially more than that.
*https://www.ssa.gov/policy/docs/research-summaries/education-earnings.html
However, you need to be on track and fully funding your retirement before you start contributing to a 529 or paying for an older kid’s college. Clients have told me, “But I want to help my kids” and my answer to that is, you are helping them! By saving for retirement now you won’t have to move into their basement because you spent your retirement money on their college.
Why It’s So Hard
Here’s the immense challenge. The exact same years between the birth of your child(ren) and their graduation from college are some of the most crucial decades when you need to be saving for your retirement. That’s why it’s a challenge. But most people sacrifice it all for their kids, when instead, they should sacrifice 15% less.
Your Kids Have More Time
Regarding college expenses, it is very important to note that when your kids graduate college they will have many more decades to pay off their loans and save for their retirement. You can take loans for college, but not for retirement. (Choosing the right college financially speaking is a whole separate newsletter I need to address in the future).
It’s Not Just College
Some are helping their adult children financially for reasons other than college. Maybe it’s taking money out of your 401k to pay for a wedding or a down payment on a house. Every situation is different, but before you help them you need to confirm that you are putting your “oxygen mask” on first. If you are, then by all means feel free to help them.
Take It From Someone I Know
Someone I know very well earned a great salary (>$250k/year) their entire career, and yet they are still working in their 70’s because they constantly put their kids oxygen masks on first. Sure, they paid for their kid’s college and weddings, bought them their first cars, paid for expensive extracurricular activities, but sadly put nothing away for retirement.
If they would have spoiled their kids just 10% less, and invested into their retirement, they would now have over $3 million saved for retirement assuming a reasonable 7% rate of return for 30 years.
Instead they struggle through working, but they aren’t alone as too many Americans have done the same.
In Conclusion
The next time you are flying on a plane or financially, be sure to put your oxygen mask on first. If you, your friends, or your family need to review your financial priorities feel free to reach out.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing. Investing involves risk including loss of principal. No strategy assures success or protects against loss. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
