A balancing act: Saving for retirement and education


By Grant Collins - Watson, Chaney & Associates



How do you handle competing priorities when both may feel equally important? This is a question many face when it comes to saving for their own retirement and their children’s education at the same time. People are often told to save as much as they can for retirement. At the same time, they hear that given the realities of college costs today, it is critical that parents (and even grandparents) set money aside to help kids obtain a quality education. So how can you strike the right balance as you try to attain both objectives?

If you find yourself facing this dilemma, you are not alone. Even if you are doing all you can to be a responsible saver, you may not feel confident that you are taking the right steps. As you save for retirement and college, a little perspective can be helpful.

A simple fact – retirement takes priority

As much as you’d like to help your children, your primary savings focus should be on protecting your own financial security. The biggest challenge you face is having enough money to cover what could be several decades of retirement expenses. Social Security may supplement your income needs, but unless you have access to an employer’s pension plan (and these days, few of us do), you are responsible for your own savings. Therefore, the size of your nest egg and the effectiveness of your retirement investments could make all the difference. You should consider putting money aside for retirement in a workplace retirement plan (Like a 401(k) or 403(b) plan), IRAs or annuities.

The reason retirement savings should be your top priority is that once you reach retirement, you have limited options if your savings come up short. If that happens, you may need to return to the workforce or adjust your lifestyle. Few people find either choice desirable, as it means adjusting your retirement expectations. The best time to act is while you are working and earning income.

College saving is still important

Although retirement deserves the greatest attention, setting aside funds to help children achieve a quality higher education is still an important goal for many parents to pursue. This is where your personal financial discipline comes into play.

Consider this scenario: If you can set aside $100 per month (or about $3.25 per day) for 18 years, earning a 7 percent average annual return, you’ll accumulate more than $43,000 toward a child’s college education. (This example is for illustrative purposes only and does not represent an actual investment.) While this isn’t enough to pay the entire cost, it will help. Children have the opportunity to pursue other sources of financial aid, including scholarships, grants, work-study programs and loans, to help offset tuition. You simply don’t have options like these to help fund your retirement.

There are three important steps to making education saving a success:

1. Be strategic with your day-to-day spending so you have money available to save.

2. Start as early as you can to put time on your side.

3. Consider capitalizing on tax-advantaged savings by investing in a 529 college savings plan. Earnings can grow on a tax-free basis if funds are used to pay for qualified education expenses. There may also be additional tax or other benefits depending on the state you live in and the plan you select, so be sure to research your options.

You need a plan

The key to achieving both goals is to have a plan that identifies the specific financial targets you are trying to reach. This will make it easier to devise a strategy to simultaneously and successfully save for both retirement and college tuition. Most important, it will help you prioritize your savings so you don’t leave yourself short-changed for retirement. A plan can help you fully understand the challenges you face and determine workable solutions.

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By Grant Collins

Watson, Chaney & Associates

Grant Collins, CRPC, is a Financial Advisor with Watson, Chaney & Associates, a private wealth practice of Ameriprise Financial Services, Inc. in Owensboro, KY. The practice offers fee-based financial planning and asset management strategies and has been in practice for more than 20 years. To contact him by phone, please call 270-684-8424 or by mail at 111 West 3rd St., Owensboro, KY 42303. www.ameripriseadvisors.com/taylor.collins.

Grant Collins, CRPC, is a Financial Advisor with Watson, Chaney & Associates, a private wealth practice of Ameriprise Financial Services, Inc. in Owensboro, KY. The practice offers fee-based financial planning and asset management strategies and has been in practice for more than 20 years. To contact him by phone, please call 270-684-8424 or by mail at 111 West 3rd St., Owensboro, KY 42303. www.ameripriseadvisors.com/taylor.collins.

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