How to balance saving for retirement and college

Key Points

  • The timing of retirement and college may cause parents to feel they must choose between the two goals.
  • It doesn’t have to be an either/or scenario, as you can take steps to potentially achieve both goals.
  • Your advisor can provide you with personalized advice to help you make informed decisions and understand tradeoffs for retirement and college.

 

It’s a familiar balancing act for many U.S. families: saving for retirement and college, two of life’s most important milestones.

Arguably the most sizeable and emotionally significant goals, retirement and college often arrive around the same time. As a result, parents might feel they have to choose between saving for retirement and paying for college. This doesn’t have to be an either/or decision. Your advisor can help you define what you want for yourself and understand the tradeoffs so that you can make informed, practical decisions.

Financial attitudes and behaviors are shifting

According to our Modern Money study, today’s parents are helping children with more financial milestones than past generations, including college. 

Perhaps because just over half (51 percent) of respondents believe it will be harder for the next generation in their family to feel comfortable financially — and 53 percent believe children should be financially independent at a later age than they themselves were — 33 percent of parents have delayed their own retirement or would do so to help their children pay for college.

Give yourself flexibility and the best chance of success

It’s key to prepare well and find the right balance for you and your family. Your advisor can provide clear, objective advice to help you:

  • Prioritize your retirement and other goals.
  • Understand the benefits and tradeoffs of funding college for your kids.
  • Maximize your savings and investment opportunities.
  • Talk openly with your family.

 

"You only get one shot at saving for retirement, so it’s critical to keep it front and center. Develop a plan so you don’t sacrifice your financial future to fund other priorities."
Marcy Keckler, Vice President, Financial Advice Strategy, Ameriprise Financial


Here are steps to get started:

1. Establish your priorities and take action

  • Prioritize saving for retirement, if that is most important to you. You can use loans for education, but not for retirement.
  • Put time on your side. Start saving as early as possible during your working years to maximize the time horizon and opportunity for your assets and investments to grow. Automatic payroll deductions through your employer’s 401(k) plan, for example, can help you save consistently over time.

2. Maximize savings and investment opportunities

  • Save more than you think you may need for retirement. Later in life, you could consider reducing your savings rate to allocate more money for college.
  • Maximize your retirement savings through vehicles such as your 401(k) account (consider contributing at least the amount your employer will match) and, if your employer’s 401(k) plan allows, set your contributions to increase automatically every year. If you’re able to do so, also consider funding a Roth IRA or traditional IRA annually.
  • Establish college savings accounts such as a 529 plan or tax-advantaged account that provides access to broad investment choices.

3. Have a money talk with your family

  • Help your children think strategically about college. Discuss the majors and careers that interest them, and which schools may be the best fit. Encourage cost-effective options like completing required courses at a community or online college before transferring somewhere else for advanced coursework.
  • Be open about the cost of college, your family’s budget and your student’s potential income after college. Regularly talk with your children and check for understanding: Do they know what’s at stake, for example, with student loans, including how and when these need to be repaid and who is accountable for repaying them?

Talk with your advisor

Regardless of when you start, it may be possible to save for retirement and college simultaneously. Your Ameriprise advisor can provide you with the insights and personalized advice you need to make informed decisions that balance these two life priorities.