Saving for college vs. saving for retirement

Save for College Or Save for Retirement? Can You Do Both?

We all know that the cost of college has skyrocketed in recent decades, leaving families struggling to foot the bill while also trying to save for retirement at the same time. But there is another reason why saving for both has become more challenging.

In the 20th Century, most people had children earlier in life. By the time you were 50, your kids were likely either finishing up college, or already graduated, leaving you with 15 years or so to devote all of your spare income to saving for retirement.

However, today we are looking at a very different scenario. More and more couples are having children later, which leaves them with a very small window of time to focus on retirement savings after the kids finish college. This means that many families are faced with a difficult choice: Should you save for college, or save for retirement? Is it really possible to do both – and save enough for either one?

The short answer is…yes, depending on a few different factors…

Starting to save early in life for both will give you your best chance of achieving both a secure retirement, and a solid college plan. While early on, your savings may include various investments, as you approach the college years, you will want to make sure you have the bulk of your savings in more secure vehicles that will not be subject to the whims of the markets. After all, the last thing you want is to have most of your hard-earned college savings wiped out by a market correction just a year or two before your child heads off to college! There are a number of places you can save money for both college and retirement, and each has its pros and cons. Here is some info about one of our favorites.

But what if you are just a few years away from college, and you haven’t saved enough?

There are still some things you can do, but you may have to consider some alternative strategies, and accept the fact that you may not be able to pay for the entire college bill for your children.

Here are a few strategies to consider:

  • If your student is eligible, have them participate in Advanced Placement classes to help shave off some college credits while still in high school.
  • Consider community college for the first year or two to get basic classes out of the way at a lower cost – just make sure the credits will transfer to a university with them later.
  • Shift some of the cost of college to your students. Discuss the high cost of college with them, so they understand the challenge you are facing, and let them know that you will help out, but they will need to have some “skin in the game” as well. Students may work part-time while in college, take some student loans, and keep their grades high to qualify for as much financial aid as possible each year. With a team approach, you can often make this work out very well for your family, while your student learns responsibility and valuable financial management skills at the same time.
  • Have your student work with an expert on career planning while in high school. While he or she may not yet know what they want to major in, having a good idea of their passions, likes, and dislikes can put them on a better pathway to success – and potentially reduce wasted time in college figuring these things out later on.
  • Do everything you can before the college years to position your student and your family to receive as much financial aid as possible. This can include not only things like good grades and challenging classes, but also extra-curricular activities and high test scores on the part of your student. Proper management and restructuring of family assets and income in some cases can also lead to increased financial aid eligibility. (For help in this area, please contact us for a FREE family evaluation, where we can determine what steps you need to take to maximize your family’s financial aid eligibility and minimize your out-of-pocket costs.)

While planning for college, do your best to continue saving regularly for retirement. After all, while you may not want your student saddled with college debt, at least loans are available to them. You won’t have that option for retirement! This is one reason why we strongly discourage families from using retirement savings for college costs – it just doesn’t make financial sense in the long term.

As with your college savings, consider transitioning to more secure vehicles for your retirement savings as the retirement years approach. Market volatility can wreak havoc on your retirement plan if you are positioned improperly with regards to risk in your later years – especially during the distribution phase when you begin taking retirement income from these funds. (For a no-cost, no-obligation retirement review to make sure you are on track to meet your retirement savings goals, feel free to contact us to discuss your goals with a retirement planning specialist.)

With careful planning, thoughtful strategies, and a knowledgeable expert in your corner, you can very well save for both college and retirement at the same time – and meet with success in both arenas.

Need help with either college planning, retirement planning, or both? Contact us today for a free initial strategy session! We can be reached at 614-536-0088.

 

Leave a Reply