How to Juggle College and Retirement Savings

family landscapeHow do you successfully negotiate the conflicting goals of saving for your children’s college educations, as well as saving for retirement? If you are like most people, these two goals are constantly competing for your savings dollars and it can be difficult to prioritize one over the other, especially since education seems a more pressing goal. If you are feeling stretched and maybe discouraged as you battle these opponents, there are a few key takeaways to consider:

  1. Prioritize Appropriately

You cannot look at these two goals serially, thinking that if you just focus on the education piece and work your way through this, then you will be able to focus on retirement savings. Because the resources needed for retirement are so substantial, it is typically not an amount that can be accumulated in short order, but rather needs the advantage of years of compounding to accomplish. Current lifespans suggest we need to save for retirement at a level which could sustain us for upwards of 30 years. Therefore, retirement savings needs to be occurring early and often in order to reach your goal.

  1. Protect Your Human Capital

Your Human Capital is your ability to earn income for your family. When your earning potential is at its peak, you need to be taking advantage of this and saving aggressively for the future. What is difficult to know for certain is how long your highest earning years will last. Therefore, you need to protect your human capital by having appropriate protections in place to reduce the risks posed by an early disability or death. Although these might seem like large outlays of already stretched dollars, insurance protection in these areas will greatly reduce the risks to your family if your earning dollars cease to exist.

  1. Know your limitations

While your goal may be to give your children EVERYTHING they could ever want, it may not be a realistic goal, especially where educational costs are concerned. One of your goals with your children should be to teach them financial responsibility so they will eventually be independent, financially-functional adults. Therefore, initiate conversation with your spouse to find agreement on how much financial responsibility you are willing to take on for your children’s education. Once you have identified your boundaries, you can begin to communicate this to your children as they enter high school. Whether you restrict application to in-state public universities, set a limit on annual outlays, or incent them with matching dollars for scholarships/grants, your children need to be part of the conversation. Some parents allow their children to apply to any desired university with the understanding that costs above the agreed-upon limits will be on the child’s shoulders to pay via student loans, income from part-time jobs, etc.

  1. Explore your (and your child’s) Options

Explore the options for reducing the costs of education for your children. This may include public vs. private education, grants, scholarships, AP classes during high school, and even pairing the choice of colleges based on the type and amounts of aid granted.  Many lesser-known colleges have substantial scholarship dollars available to help attract students to their campus. Lastly, understand that tuition, room and board are not the end of college expenses. Clearly indicate what you will be willing to pay for (books, sorority/fraternity dues, food, gas, clothing, spring break trips, entertainment, etc.) so there is no question in your child’s mind.

Saving for education can be a daunting task, especially if you have multiple children.   Saving for your eventual retirement can be even more overwhelming, but in both cases, you are at a distinct advantage if you begin to work toward these goals early in the process. Education is important for your children, as statistics have shown that college graduates fare much better throughout their lives financially. However, you cannot neglect your own retirement security in order to obtain their educational goals. One of the greatest gifts you can give your children is to NOT be dependent on them in later life.

If you are struggling with how to negotiate these, or other competing goals, speak with your financial advisor to help prioritize your savings strategies for their best and highest use.