Hardy world has a question. It says, "How should we prioritize contributions to children's 529 accounts versus retirement accounts?" Right now, I'm prioritizing retirement at a 4:1 ratio, but college will arrive before retirement. So, can you give him some guidance on how to think about this?
Well, before we talk about the specific guidance and percentages, let's think about it theoretically. When you get to retirement and it's time for you to exit the workforce, you are really going to be dependent upon Social Security if it's there and available for you, any sort of pension income you may have if you work for a governmental institution or your employer has that, and then anything that you've saved up or invested outside of those sources. There's not going to be anybody hanging around saying, "Hey, Hardy world, you're retired, let me offer you a retirement loan, let me give you some money to help you get through this." A retirement scholarship, maybe a retirement grant, those don't exist, those aren't a thing.
Now, play the counter to that. When your child gets to college and decides that they want to advance their career, there's going to be a number of different ways they can pay for that. They can get scholarships, they can get grants, they could take out loans, maybe they could do some sort of work-study, maybe they could pay their way through it. There's going to be a lot of options for them when they get to college age, ready to go out and do that. So when you lay out your two alternatives here, I've got no options. I better make sure I measure twice, cut once, and my kids are going to have a lot of options. I think you naturally recognize where you should put your priority.
However, for parents, that certainly flies in the face of what feels natural and normal. Well, I mean, we love our kids. Our kids are just, I mean, they're the best. But let's clarify here. They are the best, but I do think that you have pre-children friends and then you have post-child friends, 'cause some people just go crazy for their kids. Oh, that's a fact. I mean, that's why I never can tell how people are going to be until they have that first child. I'm like, "Oh, okay, I guess we don't get to hang out with them anymore 'cause they've now decided they're completely Gaga for the kids, only the kids all the time, kids." That's why I just want to make sure financially you don't fall into that trap too.
Because, I mean, look, we love our kids. I'll do anything in the world. We'll die for our kids. We'll do whatever it takes. But there is something where Bo just laid the groundwork. And that's why I think it's controversial, but it's necessary. Is that we don't talk about, and there's a reason we put that graduation cap when you go to moneyguy.com/resources
and download your free version of the financial order of operations. I'll make you all get the sound in there. You don't get to do that. That's step eight, which is the prepaid expenses or abundance goals. That's when you're really starting to focus on the kids' college savings. But you really got to be beyond saving 25% of your gross income, and you've also gotten to step seven, the hyper-accumulation where you're focusing on, "Hey, what are the goals?"
So, I can make sure if I think I'm retiring at 50 or 55 as part of the fire movement and I want to do college, man, you have to make some tough decisions on what the structure of the accounts, how much you need to be saving. So you probably want to get that figured out before you get over to Step eight, which is the kids' college, because what I don't want is your college plan where you prioritize getting the kids' college money in there first is that your only retirement is for your kids to be so successful that you move into their basement. Nothing wrong with living in the basement with kids, but I want it to be a choice. I want it to be a generational choice.
You know, one of our popular React videos that went somewhat viral is, and I think we've taken some flak on it, is because people say, "Man, y'all are just rough on parents, you know, the generation multigen." I love that. I mean, I think about one of the hardest things of living in the state of Tennessee is that my mother is not close by, my mother-in-law is not close by, and I crave that ability to have multiple generations and family being around each other. But it needs to be for the right reason and right choice, so it can be healthy versus, "Hey, you went to college, congratulations, I'm moving into the basement because all the money went towards your college, versus getting my own financial independence." So, surprise, I know you've got your own kids, I know you've got your own spouse, but you won't even notice I'm here. Yeah, I mean, it's don't you versus how cool would it be, y'all just love spending time with each other, and you're like, "Man, I'd love to have my parents live with us, or our parents live on that land out back, down by the river in the van." You know, just being funny, being silly at this point. But I wanted it to be a choice instead of something that is forced upon the decision-making process. For more information, check out our free resources