Achieving your financial goals take patience and time, especially when you have to save for retirement and your children’s education. You want to be able to retire comfortably when you hit retirement, and you also what to be able to afford your child’s higher education costs. Balancing the two can be challenging, and hard to see how they can come together.
Saving for college and your retirement may seem impossible, and as a parent, you probably want to help your kids avoid a seemingly lifelong student loan debt. So how do you balance these two priorities when saving for the future?
Determine Your Financial Needs
Before you plan out your monthly allocation needs for your retirement and your children’s education, you need to review your overall financial needs. Many people will advise you that you should prioritize your retirement needs over your children’s education, but there are a lot of factors that can contribute to each family’s decision, and it’s never strictly financial. Here are some important factors and questions to ask yourself when determining your financial needs for both retirement and saving for your children’s education:
- How much time do you have left before you retire?
- Do you have a pension, or are you expecting social security?
- What is your expected annual need to meet the standard of living you are hoping for in retirement?
- How many children do you have, and how much time do you have before they reach college age?
- What is the expected cost of college by the time they reach college age?
- Will you be depending on financial aid or scholarships? Do they have any skills that could contribute to scholarships?
Once you have a good idea of what you and your family’s financial needs are, then you can start taking steps to plan out what you should be putting away monthly to reach your goals.
Which one is more important?
Funding your retirement and paying for your children to go to college are probably equally important in planning your future. If you have limited funds, you may find you need to prioritize one or the other, and most experts will advise you to focus on retirement.
Funding your retirement should take priority as the first decade helps build your foundation. Your children can always apply for scholarships and college loans, but you cannot pull out loans to fund your retirement. Even if you can put away a small amount monthly towards your children’s college fund, the compound interest can help you reach your goals or even just take some of the burdens of the cost of college off of your children.
Tips for Balancing Both Goals
Not everyone will be able to save for both equally at the same time comfortably, and that’s okay. Small momentum can make a big difference in putting away money for retirement and education. Here are some tips that may help you achieve your goals:
- Defer your retirement or work part-time during retirement – You can earn more money and put off the need to dip into your retirement, allowing you more time and money early in life to put away for your children’s college.
- Budget now and stick with it – Adjust your spending habits and work on your financial health can help not only save for both, but it can put you in a healthy financial position now.
- Invest aggressively early – If your children are young, put away as much as you can into college to allow the compound interest to do the work for you. You can do the same for your retirement. Your retirement will cost more than your children’s education, so you can focus on your retirement once you knock out that education fund.
- Encourage community college – Community college provides just as great an education as a traditional or ivy league college. They can save money on admission and on room and board.
Saving for retirement and for your children’s education is never a straightforward answer, and each answer and plan is entirely up to you and your family’s needs. No matter how you approach your financial goals, defining what’s most important and figuring out your financial needs is essential. You can always reach out to a financial advisor to help you create a goal and help you make an informed decision that allows you to prioritize both.