8 Tips to Fund Your Child’s College and Your Retirement
Saving for college and funding your own retirement at the same time can be a daunting task, but it is a challenge that ambitious parents face. It requires careful planning, discipline, and a commitment to both short-term and long-term goals. This article covers some of the most significant challenges you may encounter in planning for these financial milestones and tips to achieve them.
My Experience with the College-Retirement Squeeze
As someone who has experienced the value of higher education and has worked to help people meet their financial goals, I myself am dealing with planning for college expenses and retirement. My son, Thomas, turned 6 last month. I used Vanguard’s college savings planner and looked up what his college is going to cost according to their projections.
Living in the Boston area, we are surrounded by high quality schools. Boston College, Boston University, Harvard, and MIT are all within 4 miles of us. Projections list Harvard and MIT as the lowest overall cost, between these four schools, each at $594,000 in total costs for 4 full years of college. BU comes in at $617,000 and BC comes in highest at $626,000.
My wife and I went to the University of New Hampshire. If Thomas wants to go where his mother and father met, that will cost a “mere” $392,000. If he chooses to go to where his parents went to graduate school, Bentley University, we are looking at $605,000 in total costs, assuming he wants to live on campus, 3 miles away, and not in his childhood bedroom.
Those large numbers can be daunting when you do not have a financial plan. My experience over the last 20 years has shown me the ways you can meet these challenges head-on and accomplish both goals.
The Challenges of Balancing Your Financial Independence and Your Child’s College Costs
Cash flows: Balancing the cost of college and saving for retirement can be hard, especially if you have other financial obligations. Consider reprioritizing, cutting back on non-essential expenses, and redirecting that money towards your savings goals.
Managing debt: High levels of debt, such as credit card debt or student loans, can make it tough to save for both college expenses and retirement at the same time. To overcome this, focus on paying off this type of debt and reducing your expenses. Consider consolidating your debt or exploring alternative repayment options to lower your monthly payments and free up more money for savings.
Competing financial goals: When you have competing financial goals, such as buying a home or starting a business, saving for college and retirement at the same time can be challenging. The Boston area is one of the most expensive areas in the country so this can be a hurdle for area residents. To succeed, you have to prioritize your goals and allocate your resources accordingly. Consider seeking the advice of a financial advisor to help you create a comprehensive plan that balances your short-term and long-term goals.
Inflation: Inflation can erode the value of your savings over time, making it problematic to pay for college or fund your retirement. To overcome this, investing in a diversified portfolio that includes stocks will be key to keeping pace with, or exceeding inflation. Of course you will also want to be sure you are setting aside a portion of your savings in an emergency fund to cover unexpected expenses.
Market volatility: Market volatility can make it arduous to save for college or retirement, especially if you are relying on investments to help fund your goals. Investing in a diversified portfolio of equity and fixed income assets, helps you be well positioned to address the market fluctuations that can be stressful. By starting early and making regular contributions, this will help you weather market ups and downs, and still achieve your long-term goals.
Underestimating college costs: The cost of college can be higher than you expect, especially if you are not factoring in additional expenses such as textbooks, room and board, and transportation. A solution to this is to research the cost of attending the college your children are interested in and create a realistic cash flow analysis that includes all necessary expenses.
Underestimating retirement costs: Retirement costs can also be higher than you expect, especially in regards to inflation, healthcare costs, and other unforeseen living expenses. To overcome this, consider working with a financial advisor to create a retirement plan that considers your expected expenses and savings goals.
Procrastination: Procrastination can be a significant challenge when it comes to establishing your financial plan. Setting specific goals and developing a plan for achieving those goals will lead to favorable outcomes. Consider automating your savings so that a portion of your income is automatically directed towards your savings goals each month.
8 Tips to Save for Your Child’s College Education While Funding Your Retirement
These are the many factors which can get in the way of meeting your financial goals of paying for your children’s college education and your own goals of retirement or financial independence, so breaking it down to 8 achievable steps can simplify the process for you. Those 8 steps are as follows:
Start early: The earlier you start saving, the more time your money has to grow and the less you'll have to save each month to reach your goal. Want to see how much you are going to need in savings for college? This college savings planner from Vanguard is a good calculator.
Create a written cash flow plan: Plan for your monthly spending and prioritize your savings for college and retirement. Creating a written plan makes it easier to stick to it.
Take advantage of tax-advantaged accounts: Contribute to a tax-advantaged account such as a 401(k) or IRA for retirement savings and a 529 college savings plan and/or Roth IRA for college expenses.
Automate your savings: Set up automatic contributions from your paycheck or bank account to ensure that you are consistently saving for both college and retirement.
Reduce debt: High levels of debt can make it difficult to save, so focus on paying off debt and reducing your expenses.
Consider multiple sources of funding: Investigate grants, scholarships, and student loans to help fund college expenses and minimize the amount you need to save.
Stay disciplined: Stick to your savings plan and resist the urge to withdraw money from your college or retirement accounts.
Review and adjust your plan regularly: As your circumstances change, review your savings plan and adjust as needed to ensure you stay on track to reach your goals.
Getting started is the hardest part. If you need help reviewing your own personal situation and options, schedule a complimentary consultation with me, a financial advisor specializing in wealth planning for parents who are saving for retirement and their children’s college educations.
