Life is full of big financial goals, and two of the biggest ones is saving for retirement while also saving for your children’s college education. Both require smart financial planning and consistent effort, but balancing them can feel overwhelming. In reality, most people need to prioritize one over the other, as they don’t have enough money to fund both. Since everyone’s personal situation is different, there’s no one answer that works for each person. Therefore, it’s important to understand your priorities and factors related to those priorities.
In this blog post, we’ll explore practical strategies to help you manage saving for college and planning for retirement simultaneously—without sacrificing one for the other.
Set Priorities with a Clear Vision
Start by visualizing what you want for both your retirement and your child’s education. Ask yourself these questions:
- What does an ideal retirement look like for you?
- Do you want to retire early, or are you comfortable working longer?
- How much of your child’s education costs do you plan to cover?
Getting a clear picture will help you prioritize. Generally, financial advisors recommend that you save for retirement first because there are more flexible ways to finance college (scholarships, loans, grants), whereas retirement has fewer options beyond savings.
What are Your Priorities?
Parents will be torn between the two challenges. Some parents are adamant about paying the majority of your children’s college tuition. If that’s the case, then you’ll make specific decisions to reach that goal.
Or you may be on the opposite side of the spectrum and believe your children should take out loans and pay for their own education. In that case, you’ll make different financial decisions to prioritize your retirement savings.
While these are extreme cases, it’s helpful to analyze the scenarios, as they can provide insights for what might work best for you.
Prioritizing Your Children’s Education
If your priority is funding your children’s college tuition, there are some factors you need to consider. First, since you’re not focusing on saving for retirement, you’re going to have to work longer. What happens if you run into health issues and are unable to work? This scenario isn’t something people even think about, let alone plan for, so you need to take this into account.
Another situation that could arise is having to take care of your parents during their retirement. This situation may even include being responsible for taking care of them financially. It’s important to think through all of these things. After doing so, if you still want to prioritize college savings over retirement, you should do two things. One, start funding a college savings plan (e.g. 529 plan) sooner rather than later. Two, take a little bit of that money and put it away for retirement. If your company has a match, then it’s a no-brainer to get some money set aside for retirement.
Prioritizing Your Retirement
If you choose to focus on your retirement in lieu of your children’s education, it’s still important to put a little money into a 529 plan so you have something that will grow over time. With that being said, prioritizing retirement funding is a good decision, as you’ll be able to handle the situations we identified above.
In addition, if you end up being in a really good financial situation prior to retirement, you can always gift money to your children to help them pay for any loans they may have accrued. In addition, remember that your children have time on their side. When they get out of college in their early twenties, they have time to pay of their loans.
Thinking Creatively
One alternative many people don’t consider is thinking outside the box when it comes to funding college. Here are some ideas to think about:
- Is college even right for your child? Maybe pursuing a trade is a better alternative.
- Do they need to go to an expensive college for four years? Why not encourage your child to go to junior college for a year or two, then transfer.
- Why not take classes over the summer? Taking summer can cut down on the number of years your child will need to attend college.
- Has your child thought about the military? The military could be a great fit for a young adult and eases the burden of tuition due to tuition reimbursements.
Have a Contingency Plan
Life is unpredictable, and sometimes things don’t go as planned. Having a backup plan for both retirement and college savings will give you peace of mind. For retirement, this could mean delaying retirement by a few years or adjusting your retirement lifestyle expectations. For college, it might mean considering in-state schools, community college, or student loans as supplemental options.
Conclusion
Balancing saving for your child’s education while you also save for your retirement can be challenging, but with thoughtful planning, it’s entirely possible. The key is to prioritize your long-term retirement needs, start saving early for both goals, and stay flexible with your approach.
By taking small, consistent steps now, you’ll be better positioned to provide for both a comfortable retirement and a great education for your child without sacrificing one for the other.
If you need guidance on how to build a financial strategy that works for you, consider consulting with a financial advisor who can tailor a plan based on your unique goals.
Listen to our podcast for more smart strategies on saving for both retirement and college simultaneously.
