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70% of wealthy millennial families are prioritizing college funds as opposed to retirement savings. This study by Personal Capital also found that 64% of the participants with children said their kids expected them to pay for college.
There is increasing pressure for parents to pay for their child’s education, but the cost of such an endeavor can come in more ways than one. Often parents are sacrificing their own retirement savings, or dipping into their retirement account to front the education bill.
So how do you balance saving for college and saving for retirement?
Your financial goals might not always see eye to eye. Sometimes you will have to balance different goals and prioritize one over the other. This is especially true when thinking about big financial goals like paying for a child’s education and saving for retirement.
Before you get a headache thinking of the pros and cons to each situation, I’d like you to think about the reason you are saving for your financial goals.
Understanding the motivation and intention behind your goals will help clear your mind and get you thinking about why you made the goals in the first place.
There is no right answer when you put your financial goals against each other—especially education vs retirement.
I’d like to challenge you to remove the “vs.”. What are you left with?
Retirement and education.
If both of these goals are important to you, then it is time to stop talking about them as if it is an all or nothing mentality and start talking about them in tandem and how they can work together.
Now realistically, it may not be possible for you to pay 100% of your children’s tuition while also diligently saving for retirement but that does not mean that you only have to save for one as opposed to the other.
I think it is important for parents to know that it is ok to prioritize yourself. So often we get wrapped up in our children, and that makes sense! But there are times that your needs should come first. One of the most pertinent cases being saving for retirement.
Most likely, you have been saving for retirement longer than you have had kids. Keeping that steady savings plan going is important for your future and wellbeing. Retirement is expensive. From housing to transportation to living expenses to health needs, you will need ample savings in order to support yourself once you are no longer working.
It all comes down to you and your wealth management once you hit your golden years so it is important not to jeopardize your financial security, even for tuition costs.
Just because your retirement savings should be your first priority does not mean that you have to hang your kids out to dry when it comes to college planning and tuition costs. There are many ways to work toward these goals simultaneously especially when you employ strategies like:
Start saving early.
If children are something you and your partner want, consider opening a 529 account even before you have kids. You can also use a Roth IRA, if that makes sense for your unique financial situation. A Roth IRA can be used for both education funding (if needed), or retirement savings – which makes it more flexible than the 529 plan. Getting a jump start on their college savings fund will put you in a good position and give you longer to build up the capital you will need. If that is not an option for you, then start saving right when they are born. This will still give you time to grow the account in a significant way.
Urge them to start saving as well.
Many teenagers have summer or part-time jobs. Encouraging your children to work and save money for their education can help add to your existing savings.
Scholarships are your best friend.
Local and national scholarships and grants help fund many children’s college experiences. I have a blog post dedicated to helping you find the right scholarship and grant opportunities.
Loans are an option.
There are many options for taking out loans for education. While this may not be the most ideal option, it is always there to fall back on. By using the options above first, you may minimize the amount of money your child has to take out in loans.
The most useful tool here is to establish an open and transparent line of communication. Communication between you and your partner, you and your children, and you and your financial planner will be the best way to keep your priorities straight and work toward a practical solution. Communication is key to helping you achieve your financial goals.
There is one piece of advice that cannot be overstated:
It’s ok if you can’t do it all.
When it comes to finances, sometimes you will have to make tough decisions. Saving for education and retirement is one of them. By prioritizing yourself, you will be less likely to rely on your children later in life and will be able to remain financially independent.
Remember, just because you prioritize yourself does not mean that you don’t have to halt all of your other financial goals.
Financial goals are great because they help you set a tentative plan for your life moving forward. But one of the best parts about these goals is that they can change, and it is ok to change them. Perhaps you allocate your savings for another goal into your college fund while still funding your retirement accounts.
Sometimes your financial goals will collide. As long as you have a plan, set an intention, and follow through with the best strategy for your financial wellbeing you will set yourself up for success. Are you looking for help with balancing your financial goals? Reach out to the Arnold & Mote team today!