Saving for your child’s college education while saving for your own retirement at the same time can be overwhelming — but it doesn’t have to be. The key to success is having a separate and discrete plan for each financial goal.
That being said, when prioritizing goals, retirement income planning should always come first. Financial aid can help fill a college funding gap, but there is simply no financial aid for retirement.
Let’s dive into some tips and tricks on how to balance saving for college and retirement at the same time, using the same pool of assets.
Don’t Use One to Pay For Another
As a parent or guardian, it can be hard to watch your child take on thousands of dollars worth of student loan debt at such a young age. It can be tempting to want to tap into your retirement account to fund your child’s college costs.
But, the impulse to use those funds now can come at steep cost to your overall retirement goals. In fact, every $25,000 withdrawn can reduce a retirement account by an estimated $80,000 over 20 years. That’s a large chunk of savings that most families can’t afford to lose.
Open A College Savings Account Early
When it comes to opening a college savings account for your child, earlier is always better. This allows the account to benefit from a longer investment time horizon.
A 529 college savings plan is one of the most commonly used methods to save. This is a state-sponsored investment account that enables you to save money for education expenses, such as tuition, room and board, books, and school supplies.
In order to keep your savings on track, we recommend setting up weekly or monthly automatic contributions. You should also let family members and friends know about your college savings account. Rather than gifts, they might be inclined to contribute to the account for birthdays or holidays.
Discuss Costs, Expectations, and Options
As your child gets closer to their college years, it’s important for you to have an open and honest conversation with them about college costs, expectations, and options. With college costs rising, parents and students will want to be on the same page.
Be open about your family’s budget and if you are expecting them to contribute in some way. This will give your child a financial target and enough time to start saving money. Part-time work or summer jobs throughout high school are always good places to start.
An open discussion about college costs can also inspire your student to start applying for grants and scholarships.
Questions?
If you have questions about balancing saving for college and retirement, please reach out to me at 301-990-9170 or email [email protected] for more details or to schedule a personal meeting.
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