Skip to Content
 COVID-19 Information from ACCC

How to save for your kids’ college and your retirement at the same time

 

March 12, 2020 | By Abby Wendel

In a perfect world, you could save for retirement and your child’s college tuition at the same time. But what if it comes down to a choice between the two? Which one should be the priority?  How to save for your kids’ college and your retirement at the same time

Launching your child into the world with a college degree, debt-free is an admirable goal. However, doing so at the expense of your own retirement may not be a smart choice. Juggling savings priorities requires some hard decisions, and a financial plan can help you manage. 

Approximately half of families say they borrow money to pay for college, according to a 2019 report from Sallie Mae on How America Pays for College. We also know that one in five adults already aren’t saving enough money for retirement, and women tend to save less than men in general. Based on this data, it’s easy to see how saving for college and retirement at the same time can be challenging for parents, and women in particular.  

As you start to think about saving for college and retirement simultaneously, consider the full funding picture. Your children have several choices to help pay for college, including loans, scholarships and grants—all of which can significantly offset these expenses. While these are well-known considerations, it’s worth noting as there aren’t alternative options like this for retirement savings. As such, being intentional about how you save for each of these life events is critical.  

Below are three steps to consider as you plan your long-term savings goals.

 

Consider the impacts of not saving for retirement

Retirement and college tuition may seem like two competing priorities, but if you stretch yourself thin to help pay for your kids’ college, it could greatly impact your future. Impacting your financial future could, in turn, also impact your children and their ability to gain support from you as they encounter challenges or reach milestones. 

Savings concerns like these transcend income levels. According to an American Consumer Credit Counseling survey, the lack of retirement preparation in the $20,000 to $30,000 income range (with nearly nine out of 10 individuals reporting they were not prepared) was surprisingly similar to those making $100,000 to $150,000 (with nearly eight out of 10 giving similar answers). 

Tip: If possible, it could help to take advantage of your employer-sponsored retirement account at the level that earns the maximum employer-match benefit. Then evaluate your excess income to determine how much you can comfortably allocate to your child’s college savings fund.

 

Consider savings accounts designed for college tuition

If you think your child will want to attend college, starting early can make a big difference. If they are still young, a 529 college savings plan is an option to consider. From an investment alloation perspective, 529 plans work like 401(k)s. You can personally select funds or choose a target-date-fund, which is an age-based portfolio that automatically adjusts risk exposure and allocation to when your child will start college. There is typically no minimum to open an account and you can make contributions as you are able. 

If your child is older, go over the choices with them, whether that be taking out a student loan, working to get scholarships or finding a work-study job on campus. This will help you and your child better understand expenses related to college and how they can pitch in. 

Tip: Educate yourself and your child on different savings and financial options—the sooner the better.

 

Create a budget

College students typically have options for borrowing money for college—but you can’t borrow money for retirement. Using your retirement money to pay for your kids’ college could impact your retirement savings for years to come. 

Take a close look at your income and expenses. If you are already allocating funds to retirement, and adding another savings obligation seems like a stretch, closely analyze your everyday costs. If you can find areas to trim expenses, whether by reducing subscription services or lowering your grocery bill, these extra dollars can add up over time. 

And, as important as it is to make sure your child has the best possible education and future, it is also important to teach them the importance of saving and budgeting. Bring them in on the conversation and explain how you and the family have common long-term goals. 

Tip: Start the budgeting and saving conversation with your child early. Sharing details on costs, expectations and how to plan is invaluable in preparing them for future financial needs and situations. 

Regardless of your income, creating a budget and reviewing your savings options can help alleviate some of the stress when it comes to saving for retirement and planning for future college costs.

 

 

 American Consumer Credit Counseling (ACCC) provides non-profit credit counseling, financial education, debt relief consolidation and debt reduction services for consumers nationwide. We offer free credit counseling to help individuals and families learn how to pay down credit card debt and how to eliminate debt altogether. As an alternative to expensive unsecured debt consolidation programs for settling credit card debt, our debt management programs help consumers pay off debts and manage credit card debt more quickly by consolidating payments. We also offer debt negotiation services to help reduce finance charges and interest rates. And our financial education services show consumer how to manage money more effectively and how to get rid of credit card debt more quickly – usually in five years or less.

American Consumer Credit Counseling - Consolidate Debts - Better Business Bureau American Consumer Credit Counseling - Consolidate Debts - Mass Housing Approved National Industry Standards for Homeownership Education and Counseling American Consumer Credit Counseling - Consolidate Debts  - Council on Accreditation American Consumer Credit Counseling - Consolidate Debts  - NFCC Member