As the school year approaches, many parents are faced with the daunting task of saving for retirement and their children's education at the same time.
Being a parent is one of the most rewarding experiences life has to offer. However, it does bring its challenges and responsibilities, including saving for retirement and your child’s college education simultaneously. When you stop and look at college tuition prices, it’s easy to get overwhelmed with the thought of saving for both. Our financial advisors have worked with many families in this position, and have some tips to help you get started.
Put Yourself First
With fewer of us receiving pensions and Social Security’s future in doubt, saving for your retirement may be your only significant source of income in retirement. There are grants, loans, scholarships and other ways of funding college, but there are no retirement loans. Your child will also have an entire working career to pay off any accumulated debt from college.
The earlier you start saving for education, the smaller the drain will be on your budget later in life. For example, assuming a 7% return*, if you start saving $250 a month when your child is born, you can expect to have about $107,680 by the time your child is 18. If you wait until your child is 5 years old to start saving, you can expect to have about $63,332. Not only do you have $15,000 less because of delayed savings, but you missed out on over $20,000 because of compound interest and returns.
Set Realistic Goals
Even though we would like to pay for all of our child’s education, it’s important to be realistic about your finances. If you set a goal to pay for 25-50% of your child’s education, you are less likely to be discouraged and stop saving altogether.
For those with limited resources, it’s important to set a goal that’s attainable such as covering tuition, books and fees. This total tends to be smaller and more manageable than the numbers for fully funded college plans. If your situation changes, you can always increase the amount you are saving.
Many states offer tax deductions to residents who open a 529 Plan to save college. Go to your state’s 529 Plan website for more information.
Complete our simple form or call (916) 269-0671 to speak with a GBB Financial Advisor about planning for your financial future.
*This hypothetical example is for illustrative purposes only and does not represent the performance of any specific investment.
Securities & insurance offered through Royal Alliance Associates, Inc. Member FINRA/SIPC. Advisory services offered through Genovese Burford & Brothers Asset Management, not affiliated with Royal Alliance Associates, Inc.