Should you save for your child’s college education or your retirement? It can seem like an impossible task to save for both, and with both being incredibly important, it can also seem impossible to choose between the two. Thankfully, you won’t have to make a choice, just implement the following tips and you will be able to meet your goals for your retirement and college savings.
Prioritize Retirement Over College Savings
While many parents want to fund their kid’s education, if a choice has to be made, prioritize saving for retirement over saving for your child’s college education. Prioritizing retirement doesn’t mean you won’t save for your kids’ college, but it does mean that your priority will be ensuring you have the money needed to retire first before all else. Your kids will have other opportunities to pay for college through scholarships, grants, and student loans. You, however, only get one shot at saving for your retirement, so it has to be your priority between the two.
Determine Your Goals
Before you can determine what you need to save for college and retirement you have to get clear about your goals for both. According to CNN Money, you will need to replace 80 percent of your pre-retirement income to live comfortably in retirement. The numbers may change based on how you plan on living once retired, but the 80 percent figure can act as a starting point when deciding how much you need to start saving now for retirement. If your child attends a public in-state college, you’re looking at six-figure price tag per student. One study suggests the cost of tuition could be as high as $205,000 for a four-year degree by 2030. Once you’re clear on the numbers, you can then make plans on how much you’re going to save to reach your desired financial goals.
Maximize Retirement Savings
Since you should be prioritizing retirement savings over saving for college, make sure to maximize all of the retirement savings opportunities available to you. If your employer offers a 401(k) match, make sure to take full advantage of the plan and If you haven’t already, consider opening a Roth or Traditional IRA as well. A Roth IRA will allow for tax-free withdrawals once you’re ready to retire, while a traditional IRA will allow for you to defer taxes on contributions until you’re ready to withdraw them, lowering your tax bill today.
Maximize College Savings
Retirement plans aren’t the only ones that allow you to maximize savings opportunities. College plans also can also offer amazing tax benefits making it easier for you to save. Check to see if your state offers a 529 College plan. 529 college savings accounts allow for tax-free contributions and withdrawals for qualified education expenses once it’s time for your child to go to college. If your state doesn’t offer a 529 plan than try for a Coverdell Education Savings Account or ESA that operates similar to a 529 but can be used for qualified elementary and secondary school expenses as well.
Find a Happy Medium
Ultimately, once you’ve set goals and crunched all of the numbers you may find that you can’t afford to save for retirement and college at the levels you like. Instead of being discouraged by this reality try to find a happy medium where you can accomplish most of your stated goals. Maybe you decide to retire at 67 instead of 65 to give you more time to save for retirement or you only fund two-thirds of your child’s education utilizing other methods to finance the final third. Whatever you decided, be sure it’s a decision you’re happy with, and you start taking action today, as the future will be here before you know it.
Jeremy Wallace is founder and chief investment officer at Wallace Hart Capital Management, an independent financial services firm committed to offering comprehensive advice and customized services. Jeremy has 20 years of experience in the financial industry and is passionate about helping clients preserve and enhance their wealth so they can pursue their passions. Jeremy graduated from Emory University with a degree in international economics and a certificate in financial planning. Outside of the office, Jeremy spends most of his free time with his wife, Julie, and their three children, Isabel, Lincoln, and Reid. He is an avid Chicago Cubs baseball fan, and he enjoys golfing with his wife and traveling with his family. Learn more about Jeremy by connecting with him on LinkedIn.