Balancing college expenses with retirement planning can feel daunting, but it’s achievable with a thoughtful strategy. According to a recent survey, 58% of people saving for both report that these competing goals are causing them to delay retirement, either significantly or moderately. (1) Understanding how to navigate both effectively can help ensure you can support education goals without jeopardizing your retirement security.
The Importance of Balancing College and Retirement Goals
Funding education should enhance family stability, not compromise your financial independence later in life. Prioritizing and strategizing helps you support your child’s education while safeguarding your retirement.
Key Considerations for Balancing Both Goals
Clarify Your Financial Priorities
- Retirement typically should be the primary priority because options for funding retirement are fewer than those available for college.
- Clearly identify how much you can comfortably allocate toward education without impacting your retirement savings.
Explore Smart Funding Options
- Utilize 529 College Savings Plans, offering tax advantages specifically designed for education savings.
- Consider merit scholarships, grants, and financial aid to reduce out-of-pocket costs.
- Evaluate work-study or part-time work opportunities for students to contribute to their own education.
Explore Optimizing Retirement Savings Contributions
- Maximize your retirement accounts, such as 401(k)s and IRAs, to leverage compounding growth over time.
- Avoid borrowing from retirement funds due to penalties, potential tax implications, and loss of future growth.
Set Realistic Expectations
- Open conversations about financial realities and expectations with your child, involving them in funding decisions and the pursuit of scholarships.
- Choose educational institutions within realistic financial reach, balancing affordability with academic quality.
Next Steps: Crafting Your Strategy
Finding the right strategy to balance college and retirement planning depends on your unique situation—your income, your investment opportunities, and your long-term goals. This can be a stressful and emotional decision, and it’s important to approach it with a plan that works for you.
If you’re currently navigating this challenge, we can help you explore ways to work toward your financial goals with more confidence during a complimentary meeting.
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Source:
(1) Hallez, Emile. “Saving for College Hurts Retirement for Nearly 60%, Survey Says.” InvestmentNews, 13 July 2023, www.investmentnews.com/saving-for-college-hurts-retirement-for-nearly-60-survey-says-239861
For more complete information about your 401(k) investment options, call your company’s plan administrator or your financial professional for a prospectus. The prospectuses contain details on investment objectives, risks, fees, and expenses, as well as other information about your plan’s investment options, which you should carefully consider. Please read the prospectuses thoroughly before sending money.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or protect against losses.
This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues. Roth accounts require the owner to be 59.5 years old and have had the account open for 5 years to take penalty-free withdrawals.
