Monday, May 21, 2012

College Savings vs. Retirement Savings - How To Strike A Balance

RetirementRetirement (Photo credit: Tax Credits)
Saving money for both college and retirement goals at the same time can be challenging. The cost of a college education continues to rise faster than inflation, at roughly 5 percent per year. According to the College Board, the average costs for four years at a private college is now more than $150,000 — including $38,589 for the 2012-13 school year. Even going to your state’s university, it runs close to half that total at an average of  $17,131 a year. This is peanuts compared to what you need to save for retirement.

With the good intentions of keeping their kids out of debt, parents are footing the bill for college costs. They are putting thousands of dollars away for college expenses that would of otherwise gone to retirement savings. A recent study from Ameriprise Financial shows that only 24 percent of baby boomers were saving any money for retirement, in 2007 the percentage was 44 percent. Many college parents will be experiencing substantially reduced retirement lifestyles because of their kindness. 


Put retirement saving back where it should be, "first". Your kids can finance college or attend a college where the costs are more in line with the families finances. Sacrificing your retirement plan to help your kids is never a good idea. Your kids will understand, besides tell them if you don't save for retirement you will have to move in with them when your old. That will help them get the picture.

Start Early.

The key to saving for anything is to start early. Start saving for college when the child is born. Waiting even a few years causes you to have to save more monthly and the amount of compound growth will be greatly reduce. Even just saving $50 or $100 per month will help you accumulate a large college fund after 18 years. Set up a 529 college savings plan to take advantage of the tax-free withdrawals for education costs.

Make it a Family Project.

Include your children in their college savings plan. Over the years, your children receive cash gifts for birthdays and holidays. A large portion of those gifts should be put in the college saving account. It's a good lesson in teaching your children the importance of saving and participating in the families financial goals. Why should the parents be the sole provider of college finances? Teaching your children the value of paying their own way has incredible benefits all through their adult lives.

Pick an Affordable College.

Pick a college the family can afford. A prestigious college is all well and good if you have the cash to pay for it. But if the family doesn't, is it worth putting the family in massive debt for only four years of college, just to have a diploma from an ivy league school. Other ways to save college costs is to attend a local two year community college and finish at the more expensive college. Staying in state will also afford you much more savings than traveling out of state.

Remember parents, giving your children a good college education doesn't have to mean breaking the bank and sacrificing your own retirement. It is possible to do both in a reasonable way. 

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  1. Very sensible advice I think. The kids have lots of time and opportunity to solve their own challenges; parents have to took after themselves first. Otherwise, they may end up a far bigger burden on the kids than would have been the student loans they avoided by robbing their own retirement savings!

    1. Having your kids pay for more of their needs teaches them a work ethic. They should have jobs as soon as possible. Paying for their own phones and saving for college. Parents should use every opportunity to teach money comes from work.

  2. Great article!! by the way I am looking for good rates on annuities any thoughts – my next door neighbor is an agent with bankers life and casualty he claims to they have the best rates but don’t know if anyone here had any experience with them please give me your feedback

    1. I don't know of annuities specific rates. It's not something I know to much about. Personally I don't like annuities because they seem more riskier than other solutions. That's just my two cents worth.

    2. Thoroughly useful guidelines to say the least. In order to avoid the extra monetary burden off your shoulder you should start the planning for educational fees when your kids are infant or even better when they are born. At the same time retirement planning should get started when you have just stepped onto your job and stabilized yourself a bit on corporate world. On the other hand, when your kids grow, its possible for them to save more from pocket money or to have a part time job in order to help their parents.

    3. Starting early and compound interest are the two best tools we have for anykind of savings plan. The negatives are procrastination and indecision. Sadly most people wait to long to start and save to little.


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