Conflict? Saving for Retirement and College

Jim Ludwick, CFP®

One of the most perplexing issues confronting parents is how to save for their children’s education and their other financial goals including retirement.  Both retirement and college expenses require huge amounts of future capital.

 For young parents, especially those in their early thirties and with more than one child, it means having to confront the possibility of working longer to save for these two goals.

 It’s difficult to create a pool of money to fund retirement given the elimination of pensions by most companies and the reduction of pensions by governments at all levels. Most workers are being challenged to save on their own for retirement.  At the same time, college costs are continuing to rise at alarming rates of 5 or 6 percent annually.  What’s a person or couple to do?

 First, consider what type of retirement you expect and how much in savings that might entail. For middle-class Americans in their early thirties that might mean a nest egg of $2 million future dollars by age 65 to give them an income stream equal to $50,000 a year in today’s dollars.  That might take saving a combined $1,500 a month for more than thirty years.

 Add to that saving effort a future $250,000 for each child to attend a four-year college in 15 to 18 years from now and you’ve got to put away at least $550 a month per child.  With two or more children going to college that becomes a daunting task.

 What are some of the options?

 ·      Work longer to save or pay college loans (Can’t finance retirement)

·      Fund less college, maybe two years of community college first

·      Reduce retirement budget

·      Put more burden on children for college expenses

·      Explore eligibility for scholarships, grants, and free college programs

 The sooner parents develop a financial plan to address these two critical and sometimes conflicting issues of retirement and college savings the more likely they will be able to track their progress and make good financial decisions about other uses of their money. Tracking progress also relieves some of the stress experience in the “head in the sand” approach.

 Reading books and articles on these issues and obtaining professional advice early on, will help answer the question: Can we do it all?

Further Reading

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