With the cost of colleges and universities steadily rising, it’s no surprise parents are planning early to save for their children’s higher education. This leads to parents facing the difficult question, “Should I save for college or retirement?”
To better plan for these two priorities, ask yourself a few questions first:
- How many years until I retire?
- How many years until my kids enter college?
- Does my employer offer any retirement savings plans?
- Do I expect to work at all during retirement?
- Will my child attend public or private colleges?
- Is my child qualified for financial aid?
Understanding your situation and future goals will help you develop your savings plans. Experts say there are ways to do both, save for retirement and college. But your retirement is always the priority. Here are three reasons why you should focus on saving for retirement:
College plans may change but retirement will always remain.
After completing 12 years of constant schooling, 3% of high school graduates decide to take a gap year. Gap years give young adults a chance to reassess and enjoy a year of experiential learning. It also gives your family more time to save for educational expenses.
Others decide to start off at a community college close to home. In fact, 29% of University of California and 51% of California State University graduates started at a California community college because of the affordability and transfer experience.
Retirement plans can also change in unforeseen circumstances. The most common reasons for retirement are health and job shifts, according to the TD Ameritrade survey. Over 50% of people retired before they would have liked for reasons including layoffs, caregiving responsibilities, an unexpected change in their financial situation, and health issues. However, there is no outside help for retirement, causing most to rely on what they’ve saved.
Student loans are available to help pay for college, but there are no loans for retirement.
There are multiple ways to pay for a college education, from private, federal, and state loans to grants and scholarships. But there’s no way to borrow money for retirement. The U.S. Department of Education provides a free application for federal student aid, which tells you the federal and state loans your child is eligible for.
Planning and saving for retirement as early as possible will allow you to take advantage of interest and investment earnings over time. You’ll also have more flexibility to fund other financial priorities once your retirement savings plan is set. Watch our video series, Planning Your Financial Future, to get started.
There are savings accounts that can help balance both saving for college and retirement.
No matter which is your priority, the first step is to figure out how much you can save based on your income. Once you know the amount you can save per month, then you must decide how much to save for each priority. Then you’ll know how much to invest into a retirement savings account, using an employer-sponsored plan like a 401(k) or your own individual retirement account (IRA), and how much to invest in a 529 college savings account.
CalPERS deferred compensation plans for schools or public agency members include the 457 Plan and Supplemental Contributions Plan. Depending on your employer, you may be able to enroll in other supplemental savings products such as 403bCompare, ScholarShare 529 college savings plan, and those offered through Savings Plus. Make sure to research all your options.
Saving for both retirement and college is a daunting task, but planning early can make it easier as your family grows over time so you’re prepared for both of these major phases in your life.