In my experience, most people focus on their children’s college savings goals at the expense of their retirement. Depending on you, you’re paying for a private school, cars, homes, and food that supports them today.
Heck, you’re enjoying having them around. That doesn’t mean you don’t want to retire comfortably. Freshman year of college typically is staring you down sooner than you expected. It captures your focus. So how do you juggle the two?
Turn retirement and kid’s college savings goals into objectives
The first step is to determine what your financial capability is for each goal. Answering Depending on when you start, you will have flexibility. It is important to consider the college and retirement goals together as you may have to reevaluate based on constraints you discover. the following questions can help you get started:
What are your kid’s college savings goals?
- How much time before your kid(s) starts college?
- Do you want to send them to a public or private college? What’s the expected cost?
- Do you want to fund the whole thing or some portion?
- Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
- Do you expect your child to qualify for financial aid?
- Will grandparents be helping? Is there help in writing or hope?
Paying for your retirement goals
- How many years until you want to retire?
- What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
- How much do you expect to receive in Social Security benefits? You can go online to find out.
- Does your employer offer a pension plan?
- Have a traditional IRA or Roth IRA?
- Participate in an employer-sponsored retirement plan? Do they match? Note: There’s no match for college savings.
- What do you estimate your balance to be given your current results?
- How much income do you expect that balance to provide?
- Do you or your spouse expect to work part-time in retirement?
Decisions to make if you can’t fund both
To do these calculations, you can try an online calculator or hire a CERTIFIED FINANCIAL PLANNER™ professional. Armed with this information, you can see how much you need to put away for college and retirement. You may find that you can’t save enough to fund both. If so, are you willing:
- To delay your retirement a few years if that will close the gap?
- To reduce your standard of living now or in retirement: You might be able to adjust your spending habits now to have money later. Or, you may want to consider cutting back in retirement.
- To work into retirement?
- To invest more aggressively, given that would even be wise?
Would you be okay
- Expecting your child to contribute more money to college?
- Sending your child to a less expensive school?
You should prioritize your retirement given limited funds and a limited tolerance for investment risk. Don’t wait until your child is out of college to start saving. You’ll miss out on years of tax-deferred growth and compounding. That means that you will have to save extra-large amounts of money after your kid graduates to try to make up for lost time.
Ways to remake your kid’s college goals affordable
Remember, your child can always attend college by taking out loans (or maybe even with scholarships), believe it or not, there’s no such thing as a retirement loan! You can get creative. You could save what you can and supplement what you saved with student loans. Potentially, you could help them pay the loan. I recently learned of a family that allowed their adult son to live with them rent-free. What he would have paid in rent, he applied to his loan payments.
Instead of focusing on savings alone, implement strategies that save on the cost — not just for the cost of college. Ask us about our Assist Service, College List, and Dynamic College Planning services that focus on reducing the cost of college. Learn more about our “save; not just for college” approach here. Your child and future retirement persona will thank us.