You want to retire comfortably when the time comes. You also
want to help your child go to college. So how do you juggle the
two? The truth is, saving for your retirement and your child's
education at the same time can be a challenge. But take heart
— you may be able to reach both goals if you make some smart
choices now.
The first step is to
determine your financial needs for each goal. Answering the
following questions can help you get started:
For retirement:
- How many years until you retire?
- Does your company offer an employer-sponsored
retirement plan or a pension plan? Do you participate? Can
you estimate what your balance will be when you retire?
- How much do you expect to receive in Social Security
benefits?
- What standard of living do you hope to have in retirement?
- Do you or your spouse expect to work part-time in retirement?
For college:
- How many years until your child starts college?
- Will your child attend a public or private college? What's the
expected cost?
- Do you have more than one child whom you'll be saving for?
- 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?
Many on-line calculators are available to help you predict your
retirement income needs and your child's college funding needs.
After you know what your financial needs are, the next step is to
determine what you can afford to put aside each month. To do so,
you'll need to prepare a detailed family budget that lists all of your
income and expenses. Keep in mind, though, that the amount you
can afford may change from time to time as your circumstances
change. Once you've come up with a dollar amount, you'll need to
decide how to divvy up your funds.
Though college is certainly an
important goal, you should probably focus on your retirement if
you have limited funds. If you wait until your child is in college
to start saving, you'll miss out on years of potential tax-deferred
growth and compounding of your money. Remember, your child
can always attend college by taking out loans (or maybe even with
scholarships), but there's no such thing as a retirement loan!
Ideally, you'll want to try to pursue both goals at the
same time. The more money you can squirrel away for college
bills now, the less money you or your child will need to borrow
later. Even if you can allocate only a small amount to your child's
college fund, say $50 or $100 a month, you might be surprised at
how much you can accumulate over many years.
If you're unsure about how to allocate your funds between
retirement and college, a professional financial planner may be
able to help. This person can also help you select appropriate
investments for each goal. Remember, just because you're
pursuing both goals at the same time doesn't necessarily mean
that the same investments will be suitable. It may be appropriate
to treat each goal independently.
If the numbers say that you
can't afford to educate your child or retire with the lifestyle you
expected, you'll probably have to make some sacrifices. Here are
some suggestions:
- Defer retirement: The longer you work, the more money you'll
earn and the later you'll need to dip into your retirement
savings.
- Work part-time during retirement.
- Reduce your standard of living now or in retirement: You
might be able to adjust your spending habits now in order to
have money later.
- Increase your earnings now: You might consider increasing
your hours at your current job, finding another job with better
pay, taking a second job, or having a previously stay-at-home
spouse return to the workforce.
- Invest more aggressively: If you have several years until
retirement or college, you might be able to earn more
money by investing more aggressively (but remember that
aggressive investments mean a greater risk of loss). Note that
no investment strategy can guarantee success.
- Expect your child to contribute more money to college:
Despite your best efforts, your child may need to take out
student loans or work part-time to earn money for college.
- Send your child to a less expensive school: You may have
dreamed your child would follow in your footsteps and attend
an Ivy League school. However, unless your child is awarded a
scholarship, you may need to lower your expectations.
Yes.
Should they be? That depends on your family's circumstances.
Most financial planners discourage paying for college with funds
from a retirement account; they also discourage using retirement
funds for a child's college education if doing so will leave you with
no funds in your retirement years. However, you can certainly tap
your retirement accounts to help pay the college bills if you need to.
Our team is always ready to help with any financial questions or
concerns you may have. Schedule an appointment with an advisor today.
©2023 Broadridge Investor Communication Solutions, Inc. All rights reserved.
Not intended to be construed as tailored fiduciary advice. Investments are not FDIC insured, not
bank deposits, not obligations of, or guaranteed by Canandaigua National Bank & Trust or any
of its affiliates. Investments are subject to investment risks, including possible loss of principal
amount invested. Past performance is not indicative of future investment results. Before making any
investment decision, please consult your legal, tax or financial advisor. Investments and services
may be offered through affiliate companies.