July 26, 2018
In my experience, most people focus on their children’s college at the expense of their own retirement. Depending on your circumstances, you’re paying for private school, cars, homes and food that supports them today. Heck, you’re enjoying having them around. That doesn’t mean you don’t want to retire comfortably. Freshman year of college typically is staring you down sooner than you expected and captures your focus. So how do you juggle the two?
Turn college and retirement goals into objectives
The first step is to determine your financial capability for each goal. The earlier you start this process, the greater your flexibility. It’s important to consider the college and retirement goals together as you may have to reevaluate based on time and financial constraints. These questions can help you get started:
Paying for College
- How much time before your kid(s) start college?
- Do you want to send them to a public or private college? What’s the expected cost?
- Do you want to fund the whole thing or some portion?
- 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?
- Will grandparents be helping? Is their help in writing or a hope?
- What is the expected return on investment of the child’s career choice relative to the cost of the colleges being considered?
Paying for retirement
- How many years until you want to retire?
- What standard of living do you hope to have in retirement? For example, do you want to travel extensively, or will you be happy to stay in one place and live more simply?
- How much do you expect to receive in Social Security benefits? You can go online to check.
- Does your employer offer a pension plan?
- Do you have a tradition IRA or Roth IRA?
- Do you participate in an employer-sponsored retirement plan? If your employers match funds, what are you leaving on the table if you don’t participate? Note: There’s no match for college savings.
- What do you estimate your balance to be at retirement time given your current results?
- How much income do you expect that balance to provide?
- Do you or your spouse expect to work part-time in retirement?
Decisions to make if you can’t fund both
To do these calculations, you can try an on-line calculator or hire aCertified Financial Planner™ professional. Armed with this information, you can see how much you need to put away for college and retirement. You may find that you can’t save enough to fund both. If so, are you willing:
- To delay your retirement a few years if that will close the gap?
- To reduce your standard of living now or in retirement. You might be able to adjust your spending habits now to have money later. Or, you may want to consider cutting back in retirement.
- To work into retirement?
- To invest more aggressively? Be sure to evaluate if that is a good option for you given your comfort with investment risk.
Would you be okay:
- Expecting your child to contribute more money to college?
- Sending your child to a less expensive school?
You should prioritize your retirement given limited funds and a limited tolerance for investment risk. Don’t wait until your child is out of college to start saving. You’ll miss out on years of tax-deferred growth and compounding. That means that you will have to save extra large amounts of money after your kid graduates to try to make up for lost time.
Ways to make college affordable
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! Get creative. You could save what you can and supplement what you have saved with student loans. Potentially, you could help them pay the loan. I recently learned of a family that allowed their adult son to live with them rent free. What he would have paid in rent, he applied to his loan payments.
Rather than focus on savings alone, implement strategies that save on, not just for, the cost of college. Need help? Look for financial advisors with specialties in college funding, not just college savings, such as College Funding and Student Loan Advisors, as well as retirement, such as a Chartered Retirement Planning Counselor™, Certified Financial Planner™, etc. Your child and future retirement persona will thank you.