One of the most difficult financial challenges is trying to achieve two or more competing financial goals at the same time. The fact is most of us don’t have a level of wealth to simply buy whatever we want. We need to plan and save to meet our financial objectives. That’s the case for parents who want to save for a child’s college education while they are also saving for retirement.
Both financial goals require a significant amount of money. Plus, tuition bills often come due at the time most people are nearing retirement – a time when every dollar counts.
Of course, you want to provide the best for your child. But at what cost? Your retirement goals?
Fortunately, you don’t have to choose one or the other. You can save for a comfortable retirement and help your child succeed. Here are some things to consider for those trying to achieve both goals.
Prioritize your goals
Not all financial goals are equal. Therefore, it’s important to prioritize – and retirement should always come first.
Look at it this way: if you focus your efforts on your child’s education rather than your retirement goals, you may not be doing your child any favors in the long run. You may not save enough for retirement and then have to rely on your child for financial support. You might save them from student debt, only to cost them later in life.
There are no scholarships, government grants or personal loans available for retirement. But, there are a plethora of options available for your student to reduce his or her college expenses.
In addition to financial resources, your child has the advantage of time. When your child enrolls in college, you’re likely nearing retirement and at your peak earning potential. Your child, on the other hand, can afford to take out a loan because their earnings once they graduate should rise as the outstanding loan balance falls.
It’s also worth considering the benefits to your child from having greater responsibility for the costs of college. It can encourage your student to better appreciate the opportunity and learn how to manage a budget.
Determine how you can help
To find out how much you can afford to save for your child’s education, first look at your retirement savings. What percentage are you saving for retirement each month? Around 10-15% of your paycheck is ideal. If you’re saving more for college, you’re making a mistake.
If you need more income to save for college, find expenses in your budget that you can either reduce or eliminate.
There are also ways to help your child that don’t involve money, such as researching scholarship and financial aid opportunities. For example, the website StudentScholarshipSearch.com allows you to find scholarships related to your child’s field of study, background and other attributes.
Another option is to sign up for Upromise (Upromise.com). As a Upromise member you can earn cash back for eligible purchases that goes into a college savings plan.
Work with a financial adviser
Reaching your financial goals generally involves a lot of moving pieces. Enlisting the help of a qualified financial adviser can be the difference between your goal becoming an accomplishment or remaining just a wish.
An adviser can look at your entire financial picture and then help create and implement a plan that balances your competing goals. Perhaps more importantly, an adviser can provide expert guidance along the way to keep you on track.
Set up a 529 plan
A 529 plan is a tax-advantaged investment account designed for college and other higher-education expenses. They are usually sponsored by states.
The savings in a 529 account can be used for tuition, books, and other education-related expenses at most accredited colleges and universities, U.S. vocational-technical schools, and eligible foreign institutions.
College savers are attracted to 529 plans for several reasons, but the tax advantages may be the biggest draw. Your earnings can grow tax-deferred and some states allow you to deduct your contributions. Also, withdrawals for qualified higher-education expenses are tax-free.
Work with an adviser to set up a 529 plan that’s most appropriate for you and your student.
When it comes to saving for college versus saving for retirement, retirement comes first. However, that doesn’t mean you can’t help your child with the resources to pursue a brighter future. Both goals are achievable with proper planning and guidance.