Saving for college and retirement can stretch your budget to the max. On one hand, you are happy to set funds aside for your kid’s education, as this could alleviate the need for student loans. But on the other hand, you may fear that you are not giving your retirement savings the attention it deserves. Saving for two goals at the same time has its challenges. But rather than get frustrated or overwhelmed, here are three tips for balancing college savings with retirement savings.
1. Put retirement first
Yes, you love your kids, and we know that you are more than willing to help with their educational costs. But if your income doesn’t allow for both financial goals, always put your retirement first. Consider this: your kids can always take out federal student loans or apply for other financial aid to assist with their college education. You, on the other hand, cannot take out a loan to financially survive your retirement years. You will need at least 70 percent of your pre-retirement income to maintain your standard of living. Not that you can’t save for both, but prioritize where your money goes.
2. Up your 401(k) contributions
An employer-sponsored retirement program is an excellent way to balance retirement saving with college savings. Your employer deducts these contributions directly from your paycheck. Because you never see this money, you probably won’t miss the income. You can literally save for retirement without lifting a finger. Determine how much you want to contribute to your employer’s 401(k) plan, and your employer may match your contribution up to a certain percentage. Funds contributed into your retirement savings plan are invested in stock and bonds. High-yield investment options can have a tremendous impact on your retirement income.
If you haven’t already enrolled in a plan, discuss eligibility with your employer. And if you’re currently contributing to the plan, increase your contributions to grow your retirement savings faster.
3. Check into college saving plans
A 529 college savings plan is perfect if you’re saving for multiple goals at the same time. Like a retirement savings plan offered by an employer, 529 contributions are invested in mutual funds and other investments. This is a simple, effortless way to save for your kid’s education. Since there is the potential to earn a higher return on your money, these savings plans reduce how much you actually need to set aside. This creates a world of options. You can deposit funds into your kid’s college saving plan, plus have enough to invest in your own retirement.
These plans are offered by nearly every state, but you don’t have to invest in your state’s plan. This is a nationwide savings plan, and your child can use funds to attend a college in any state. To open an account, contact a broker or financial planner. Not only can these professionals help you set up a 529 account, they can work with you in different areas of personal finance, thus helping you create a plan to reach all your savings goals.