The Balance: Saving For Retirement And Your Kids College

Student loan statistics never cease to disturb. In the United States, there are 44 million borrowers with $1.3 trillion in outstanding debt. With that kind of debt burden on new graduates, it’s no wonder that many parents want to try and find a way to save for both their children’s college expenses and retirement.

The reality is, it may not be possible for every parent to save for both retirement and their children’s college. However, there can be ways to find a balance when attempting to accomplish these goals.

Think About Maximizing Your 401(k)

Borrowing from a 401(k) to fund college costs is a plan that can quickly backfire. With early withdrawal penalties and taxes, it’s an expensive option that should probably be avoided. If possible, it may be wise to max out your employer matching contribution to increase the amount that’s saved toward retiring. This can help someone saving for retirement reduce their personal savings burden.

Check Out Your State’s 529 Plan Options

Planning for college is hard when tuition costs keep rising, but in some states, a 529 plan can help by allowing you to prepay tuition costs, locking in today’s prices. Not every state sets up their 529 plans that way, however, in some, the plan acts as a normal savings account.

Get Help With Financial Aid

Taking on the entire burden of school costs without looking into financial aid can be a huge mistake, especially since about 66 percent of full-time students in the 2014-2015 school year qualified for some financial aid. Have your child work with the school’s financial aid counselors to determine which programs, grants and scholarships they might qualify for.

Automate Savings Deposits

Planning to save money and really saving it are two different things. One way to ensure you actually save for both your retirement and your kids’ tuition is by automating your savings deposits. In addition to automating your 401(k) through work, you can automate transfers from your checking account to your kids’ tuition funds and your IRAs every week or month. There are also some bank programs and apps that can allow you to regularly save $1 with every debit card purchase. Some of these programs also help you save the change, the difference between your sales totals and the next rounded up dollar.

Consider Opening an IRA

Every year, you can deposit a good chunk into an individual (non-employer) retirement account called an IRA. You can choose between a tax-deferred Traditional IRA or a tax-free Roth IRA. If you’re in a high tax-bracket now, the Traditional IRA can help you reduce your tax burden, which may leave you more cash to save toward your dual goals. Choosing a Roth means you can take tax-free distributions later on, which reduces the amount you need to have saved.

Even if you can’t fully fund your kids’ tuition costs, the savings you amass can reduce the number of loans they need, putting both you and your child in a much more secure, comfortable financial position during your future golden years.

Spring Your Retirement Plan Into Action!

When you think ahead to your retirement years, you may envision a leisurely lifestyle that is just as charmed and relaxed as spending a leisurely spring day traveling with family or visiting with friends. While spring arrives seasonally whether you prepare for it or not, retiring comfortably can require ample planning and effort. If you have not already started to nurture your nest egg, spring is as good of a time as any to get started.

Preparing for the Future

Before you begin actively creating a plan for your non-working years, you may want to think through the actual experience of being retired. When you work for a living, you can either continue working or sometimes pick up more hours to get extra income if needed. When you are not working, your nest egg is likely non-renewable.  If you run out of income, you simply have no financial means left to support yourself.  Have you thought of that scenario?   If you outlive your cash in the last stages of your life, the consequences can be stressful. This is especially true if you are not physically able to re-enter the workforce.

Adjusting Your Lifestyle

Have you thought about changing your lifestyle?  If not, consider this; changing your lifestyle can serve two purposes.  First, it could allow you to save and invest more money regularly.  Second, it can prepare you to live comfortably on less money after you retire. Simply scaling back, however, is may not be enough to properly prepare for your future retirement goals.  Funding a retirement account can be essential for most people who plan to retire comfortably.  If you are unsure of all of your options available for retirement or how each investment works, you may want to consider talking with us.

Fund Your Account Now

If you are still a decade or two away from retiring, you may think that you have ample time to start saving and investing.  However, the power of time can work magic on a small nest egg.  When you invest now, your money will grow more substantially. This means that you may have to contribute less overall than you would if you start saving later. On the other hand, if you wait, you will could have to make large contributions that may be unmanageable.

Manage Finances Responsibly

Many financial professional will likely advise you to avoid debt when possible.   Most likely, your parents have told you the same!  When you do take on debt, it is often a smart  decision to pay it off as soon as possible. You may want to think about having a well-funded savings account. The money in this account can help you to avoid taking on debt when an unexpected situation develops.

Visualize the Future

It can sometimes be challenging to stay on track preparing for the future while you are trying to enjoy living in the present.  However, if you want to enjoy the future that you are dreaming about, it is wise to take steps today to adjust your finances and to prepare your life for the years ahead. Visualizing the future that you are dreaming about can help you to maintain focus on the efforts needed to achieve your goals. If you have not already started planning for your non-working years, now is the perfect time to develop a plan, a strategic plan based on your specific situation.  We are here to help you develop that plan and assist you in achieving your goals.

Be Ready For The Next Market Correction

Some retirement investors have a portion of their investment in stocks, and this may have served them well.  Stocks have recently been on a roll – and many are near all-time highs. Some investors may think the market is a bit extended.   Aside from relying on luck, what could you do to prepare your retirement nest-egg for the next downturn? Practical tips that you can evaluate and easily implement were provided recently in a Money Online article written by Walter Updegrave. Let’s take a look at the planning he suggests:

Steps To Take Before The Next Market Correction

  • Review Your Stock Holding Allocation

    Could you be too heavily weighted in stocks?  Some may recommend a high percentage of stocks, say 60 to 70 percent, in your investment mix when you are young and just starting out is fine.  Perhaps that may be a good strategy for some to begin with that allocation, but as you near or are in your post-working life, a smaller percentage may be more prudent.  There is no single stock or fixed-income mix that is best for everyone. When the bear growls, you want to be sure your retirement nest egg is protected.  Having a nice percentage of your investment mix safely in cash may not only dampen the volatility of your portfolio, but may give you some dry powder to buy if stocks become really cheap.

  • Tweak Your Budget

    While you are at it, think about your overall retirement budget. It can be as simple or as elaborate as you like. Pay special attention to such things as health care and insurance as well as prescriptions drugs, which may cost more as you get older. Conversely, the amount of money you spend on clothing for work or gas for commuting may decrease.

  • Can You Generate Other Income?

    If your evaluations indicate you may not have enough saved, consider a side-gig after leaving full-time employment. Many folks find that freelancing, consulting, or other such endeavors not only bring in extra dollars, but they are fun and keep the mind sharp.

  • Remember: Patience and Preparedness Go A Long Way!

    Finally, it may help to work with an Advisor that can help you strategically position your retirement portfolio.  Also, exercising patience can be a virtue as well.   Position your portfolio well and realize all down markets are followed by the inevitable upswing.

Having a strategic plan and some cash may help you feel more comfortable with the retirement road ahead.  We are here to help you navigate your journey.